Estimate at Completion – Present CPI Method

Posted on August 25, 2009 by

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The Budget at Completion (BAC) is how much the project is supposed to cost when finished. However, during the project it may become clear that the project will not end up costing what it is supposed to cost. The Estimate at Completion (EAC) replaces the BAC for the amount that the project is now believed to cost when it is completed. Calculating EACs are part of the tool and technique of forecasting outlined in the fourth edition PMBOK®’s Control Costs process.

One of the methods to calculate EAC is the present CPI method. This method assumes that the rate the project has been progressing up to this point is the rate that the project will continue to progress until it is completed. The formula is EAC = BAC / cumulative CPI. So the original budget for the project is divided by the Cost Performance Index (CPI), which indicates how many dollars (or other currency) worth of work is happening for every dollar being spent.

For example, Carl and his siblings are working on restoring a car. The BAC is $500, but now they suspect that this project will cost more than $500. So far they have spent $450. Of all the work that the car needs done, they believe that they have 80% of it completed at this point. We know AC and BAC, but we need to quickly calculate the EV so that we can use it to calculate CPI. The work is 80% complete, and 80% of the BAC (which is $500) is $400, so the EV, the value of the work completed, is $400. CPI is calculated by EV/ AC = $400/$450 = 0.89. Now we have all that we need to calculate EAC.  EAC = BAC/cumulative CPI = $500/0.89 = $562.

Also see the earlier postings of: Earned Value Management – Step 1 (February 26, 2009), Earned Value Management AC and BAC – Step 2 (March 2, 2009), Earned Value Management – Planned Value – Step 3 (posted March 11, 2009), Earned Value Management – CV and SV (posted August 19, 2009), Earned Value Management – CPI and SPI (posted August 20, 2009), Estimate at Completion – Bottom-Up Method (posted August 21, 2009), and Estimate at Completion – Budgeted Rate Method (posted August 24, 2009).