CPM -400: Principles of EV

Metrics & Analysis

Lesson D: Performance Index Based
Estimates At Completion (EAC)
Instructor

Keith A. Kratzert
keith.
keith.kratzert@
kratzert@faa.
faa.gov
Ph: 202202-493493-4953

IPMC 2002 Fall Conference

Professional Education Program

The Question
Ask any four EVM analysts for a point estimate
for the contract cost at completion and you will
get four different answers.

They will all be wrong!

2

Outline
What is an EAC?
How do we arrive at a number(s)?
How do we know whether the estimates are
reasonable?
What does it look like graphically?
Summary
3

Questions Answered
Past

Present

Are
Arewe
weon
onschedule?
schedule?
Are
Arewe
weon
oncost?
cost?
What
Whatare
arethe
thesignificant
significantvariances?
variances?
Why
Whydo
dowe
wehave
havevariances?
variances?
Who
is
responsible?
Who is responsible?
What
Whatisisthe
thetrend
trendto
todate?
date?

Future

When
Whenwill
willwe
wefinish?
finish?
What
Whatwill
willititcost
costat
atthe
theend?
end?
How
Howcan
canwe
wecontrol
controlthe
thetrend?
trend?

We analyze the past performanceto help us control the future

4

Basic Terminology

R
B
I

SV

line

Contract Budget Base

$
PM

eli
s
Ba

40

ne

60
15
25

Time
WBS

30

C
A
E

VAC

BC
WP

Bas
e

M
CA
BAC

BC
WS

P
W
AC

t
Con

30

t
n
u
o
cc
A
l
ro
CV
5

What is an EAC?

EAC Definitions
Actual direct costs, plus indirect costs allocable to the
contract, plus the estimate of costs (direct and indirect)
for authorized work remaining. (EVMIG)
The current estimated total cost for program authorized
work. It equals actual cost to a point in time plus the
estimated costs to completion. (ANSI-EIA-748)
The expected total cost of an activity, a group of
activities, or the project when the defined scope of work
has been completed. Most techniques for forecasting
EAC include some adjustment to the original estimate
based on project performance to date. (PMBOK Guide 2000)
7

Where does an EAC come from?

Estimate at Completion (EAC)
defined as actual cost to date + estimated cost of work remaining
contractor develops comprehensive EAC at least annually
reported by WBS in cost performance report
should examine on monthly basis
consider the following in EAC generation
performance to date
impact of approved corrective action plans
known/anticipated downstream problems
best estimate of the cost to complete remaining work
also called latest revised estimate (LRE), indicated final cost, etc.

EAC Reporting
Cost Performance Report (CPR)
Normal method of reporting EVM information

Cost/Schedule Status Report (C/SSR)

Alternative for smaller programs

OMB Exhibit 300

New requirement for FY04 budget preparation

CPR Format 1

10

C/SSR

11

OMB Exhibit 300

12

Snake Chart
Element: 2200
400.0
Complete

Time Now

Dollars In Thousands

1992

MEGA HERZ ELEC & VEN F04695-86-C-0050 RDPR FPI

Cumulative Element Performance
Name: SYS ENGINEERING
1993

300.0

200.0

100.0

0.0
BCWS
BCWP
ACWP/ETC

234.6
241.0
267.4

BAC
LRE

283.4
283.4

13

Calculating an EAC

14

EAC Formula Basis

EAC = Actual Costs Accrued to Date +

Estimate of Costs to Complete

15

Contract Performance At Completion

Index-Based Formula
EAC = ACWPcum + (BAC - BCWPcum)/Performance Index
ACWPcum = Actual Costs to Date
BAC - BCWPcum represents remaining work to be performed
Performance Index is used to adjust remaining work
upwards/downwards since actual costs to date usually do not
exactly equal budgets
16

EAC Formulas
METHOD
1. CPI

FORMULA
BAC
CPIC

2. Cumulative CPI *

ACWPC +

BAC - BCWPCum
CPICum

3. Composite *

ACWPC +

BAC - BCWPCum
CPICum X SPICum

4. Weighted 1

ACWPC +

BAC - BCWPCum
.8 CPICum + .2 SPICum

5. Weighted 2

ACWPC +

BAC - BCWPCum
.5 CPICum + .5 SPICum

* The two equations defined by OMB for inclusion in Exhibit 300

17

Contract Performance At Completion

Four types of Performance Indices:
Cost Performance Index (CPI) = BCWP/ACWP
Schedule Performance Index (SPI) = BCWP/BCWS
Schedule Cost Index (SCI) = SPI * CPI
Composite Index = W1 * SPI + W2 * CPI
Can be based on monthly, cumulative or averaged data
18

Calculating an EAC
Given a project that has BCWS = $2,080M, BCWP = $1,491M,
ACWP = $1,950M, BAC of $4,046M, CPI of 0.76 and SPI of 0.72,
calculate the EAC using each of the formulas that we have covered.
Formula

Result

BAC/CPICum
ACWPC + (BAC BCWPCum/ CPICum)
ACWPC + (BAC BCWPCum/ CPICum X SPICum)
ACWPC + (BAC BCWPCum/ .8 CPICum + .2 SPICum)
ACWPC + (BAC BCWPCum/.5 CPICum + .5 SPICum)
19

Formula Applications
EAC Formulas vs. Contract Stages
Early & Middle

EAC = ACWP + BCWR

EAC = BAC/CPI
EAC = ACWPcum + BCWR / CPI * SPI *
EAC = ACWPcum + BCWR / CPI(last 3 mos)

Late

EACcum = ACWPcum + BCWR / CPI *

EACcum = ACWPcum + BCWR / CPI(last 3 mos avg)

BCWR = Budgeted Cost of Work Remaining = BAC - BCWP

*The two equations defined by OMB for inclusion in Exhibit 300

20

Assessing EAC realism

21

Reasonableness of EACs
Assessing Reasonableness of Contractors EAC
To-Complete Performance Index: TCPI to BAC
TCPIBAC = (BAC - BCWPcum ) / (BAC - ACWPcum )
Reveals level of efficiency required to complete remaining
work within budgetary goal (BAC)
If TCPI > CPI more than 10%, and contract is more than
20% complete, then budgetary goal too optimistic
22

Reasonableness of EACs (Cont)

Assessing Reasonableness of Contractors EAC (Cont)
To-Complete Performance Index - TCPI to EAC
TCPIEAC = (BAC - BCWPcum ) / (EAC - ACWPcum )
Reveals level of efficiency required to complete remaining
work within EAC goal
If TCPI > CPIcum more than 10%, and contract is more than
20% complete, then contractors EAC goal too optimistic
23

Variance at Completion (VAC) ($)

B AC
E AC

what the total job is supposed

to cost
what the total job is expected
to cost

VARIANCE
thedifference
differencebetween
betweenwhat
whatthe
thetotal
total
VARIANCEAT
ATCOMPLETION
COMPLETIONisisthe
job
jobisissupposed
supposedtotocost
costand
andwhat
whatthe
thetotal
totaljob
jobisisnow
nowexpected
expectedtotocost.
cost.

FORMULA:
FORMULA:

VAC
VAC$$==BAC
BAC--EAC
EAC

Example:
Example:

VAC
VAC$$==$4,000
$4,000--$4,500
$4,500
VAC
VAC$$==--$500
$500 (negative
(negative==projected
projectedoverrun)
overrun)
24

Variance at Completion (VAC) (%)

Convert
ConvertVARIANCE
VARIANCEAT
ATCOMPLETION
COMPLETIONtotoaapercentage:
percentage:
FORMULA:
FORMULA: VAC
VAC%
%==BAC
BAC--EAC
EAC == VAC
VAC
BAC
BAC
BAC
BAC
Example:
Example:

VAC
-13%
VAC%
%== -$500
-$500 == -13%
$4,000
$4,000

The
Thecomputer
computerhas
hasaaVAC
VACofof-$500,
-$500,
which
equates
to
-13%
which equates to -13%

25

Assess EAC Realism?

Compare various statistical forecast for the current
month, EACs range from 6,157K to 7,040K
Contractors EAC was 5,988K
PAST SIX MONTHS

From 6 period
summary
report

Statistical and Independent Forecasts

3 PER AVG
6467.8
6 PER AVG
6329.8
CUM CPI
6329.8
CUR CPI
7053.4
COST & SCH
5652.6
LINEAR REG
6383.8
PERF FACTOR
5699.8
USER EAC
0.0
CPI*SPI
6202.1
MICOM EAC
5470.0

5777.2
5800.6
5800.6
5024.3
5376.4
5934.1
5671.9
0.0
5581.9
5470.0

6719.3
6539.2
6484.3
9009.5
5455.8
6314.3
5761.5
5455.8
5767.1
5815.1

7971.4
7663.2
7568.9
9271.7
6554.9
7339.1
6322.3
0.0
7522.7
7616.3

7171.6
6883.9
6840.9
5687.4
6302.1
7056.1
6267.5
0.0
6872.5
6915.7

6603.8
6833.0
6822.4
6156.9
6446.5
7039.5
6508.7
6822.4
6855.3
6866.0

26

EAC Realism
Element: 3600
Dollars In Millions

8.0

1992
APR

MEGA HERZ ELEC & VEN F04695-86-C-0050 RDPR FPI

Estimates at Completion
MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

1993
JAN

Name: PCC

Shows changes in BAC and

EAC.
Compares budget vs.
contractors EAC.
Software calculates EAC
based on cum CPI.
Compare this to the EAC.

7.0

Analysis: contractor
increased the budget for
this element twice.
Contractor also increased
the EAC twice, but NOT
AS MUCH as the BAC.
Based on past performance
as reflected in the Cum
CPI forecast for EAC, the
contractors EAC is
UNREALISTIC.

6.0

5.0
BAC
LRE
CUM CPI

5.1
5.4
5.1

5.1
5.4
5.7

5.1
5.4
5.9

5.1
5.4
6.0

5.1
5.5
6.3

5.1
5.5
5.8

5.1
5.5
6.5

5.5
5.7
7.6

5.5
5.7
6.8

5.8
6.0
6.8

27

How can you assess EAC realism?

Method 1: look at trend chart
compare BAC vs. EAC vs. Cum CPI forecast
portrays size of gap between contractors projected
performance and past performance
Element: 3600
Dollars In Millions

8.0

1992
APR

MEGA HERZ ELEC & VEN F04695-86-C-0050 RDPR FPI

Estimates at Completion
MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

1993
JAN

Name: PCC

Calculated EAC
wheres the
miracle?

7.0

6.0

Contractors Estimate

5.0
BAC
LRE
CUM CPI

5.1
5.4
5.1

5.1
5.4
5.7

5.1
5.4
5.9

5.1
5.4
6.0

5.1
5.5
6.3

5.1
5.5
5.8

5.1
5.5
6.5

5.5
5.7
7.6

5.5
5.7
6.8

5.8
6.0
6.8

28

Compare CV to VAC
Example 1:

CV
VAC

-6%
-13%

Example 2:

CV
VAC

-15%
-8%

Example 3:

CV
VAC

-12%
-12%

I project that performance will

get worse and result in a bigger
overrun

I project that performance will

get better. Ill have better cost
efficiencies in the future than I
do now.

I project that performance will

stay the same

29

How can you assess EAC Realism?

Method 2: compare following data
CPIcum (past cost efficiency)
TCPI-EAC (projected efficiency needed to come in at EAC)
RULE OF THUMB

EAC Realism View

DESCRIPTION

% Compl CV VAC VAC

BAC

LRE

EAC (CPI)

CPI

TCPI-LRE CPI to LRE

SYS ENGINEERING

85.04

0.0

283.4

283.4

314.4

0.901

2.650

-1.749

ENG DATA

38.51

0.0

32.2

32.2

44.1

0.729

1.303

-0.573

DATA

72.60

-16.0

127.0

143.0

151.5

0.838

1.055

-0.216

COMMUNICATIONS

34.63

-87.0

2,043.0

2,130.0

2,420.8

0.844

1.034

-0.190

PCC

28.99

-187.2

5,800.6

5,987.8

6,822.4

0.850

1.027

-0.177

PROJ MANAGEMENT

62.79

-34.0

1,384.6

1,418.6

1,482.1

0.934

1.056

-0.122

CPI and TCPI should

be within 10% of
each other

30

How can you assess EAC Realism?

Method 3: Compare various statistical
forecasts
PAST SIX MONTHS

From 6 period
summary
report

Statistical and Independent Forecasts

3 PER AVG
6467.8
6 PER AVG
6329.8
CUM CPI
6329.8
CUR CPI
7053.4
COST & SCH
5652.6
LINEAR REG 6
383.8
PERF FACTOR
5699.8
USER EAC
0.0
CPI*SPI
6202.1
MICOM EAC
5470.0

5777.2
5800.6
5800.6
5024.3
5376.4
5934.1
5671.9
0.0
5581.9
5470.0

6719.3
6539.2
6484.3
9009.5
5455.8
6314.3
5761.5
5455.8
5767.1
5815.1

7971.4
7663.2
7568.9
9271.7
6554.9
7339.1
6322.3
0.0
7522.7
7616.3

7171.6
6883.9
6840.9
5687.4
6302.1
7056.1
6267.5
0.0
6872.5
6915.7

6603.8
6833.0
6822.4
6156.9
6446.5
7039.5
6508.7
6822.4
6855.3
6866.0

31

Evaluating an EAC
Given a project that has BCWS = $2,080M, BCWP = $1,491M,
ACWP = $1,950M, BAC of $4,046M, CPI of 0.76 and SPI of 0.72,
calculate the EAC using each of the formulas that we have covered.
Formula

Result

BAC/CPICum
ACWPC + (BAC BCWPCum/ CPICum)
ACWPC + (BAC BCWPCum/ CPICum X SPICum)
ACWPC + (BAC BCWPCum/ .8 CPICum + .2 SPICum)
ACWPC + (BAC BCWPCum/.5 CPICum + .5 SPICum)

From our previous exercise add one additional factor:

contractors EAC = $4,400M

32

Estimates at Completion
Given: Contract more than 15% complete - Overrun at completion will not be less than overrun
incurred to date
Percent overrun at completion will be greater than
percent overrun incurred to date

Conclusion: You cant recover; but you can

mitigate further damage!!
Why: If you underestimated in the near term,
there is little hope you did better on the far term
planning
33

Survey Says..
over 800 programs show that . no program
has ever improved performance better than the
following EAC calculation
EAC = BAC / CPI
at 15% complete point in program
no one pays enough attention in the

early stages!
34

EAC Graphics 1
Element: 1000

MEGA HERZ ELEC & VEN F04695-86-C-0050 RDPR FPI

EAC

Dollars In Millions

1992
APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

1993
JAN

17.0
LRE
CUM CPI 15.0
COST SCH 16.0
CPI*SPI
15.0

17.0
16.4
19.4
22.8

17.0
17.3
18.0
18.9

17.0
17.4
17.8
18.4

17.1
18.6
18.2
19.1

17.1
17.0
17.1
17.1

17.1
19.0
17.5
17.7

17.3
20.0
19.9
21.7

19.4
21.2
21.2
22.1

20.8
22.3
22.2
23.2

24.0

Name: MOH-2

23.0
22.0
21.0
20.0
19.0
18.0
17.0
16.0
15.0
14.0

35

EAC Graphics 2
Element: 3
Dollars In Millions

24.0

2001
AUG

Sensis Corporation DTFA01-01-C-0001 RDTE CPIF

EAC
2002
SEP OCT NOV DEC JAN
FEB MAR APR

MAY

JUN

JUL

17.8
18.5
18.7
19.2

23.0
21.6
21.5
21.7

22.8
22.3
22.1
22.4

23.0
22.9
22.7
23.0

Name: ASDE-X

23.0

22.0

21.0

20.0

19.0

18.0

17.0
17.5
LRE
CUM CPI 18.5
COST SCH 18.7
CPI*SPI
19.2

17.8
18.5
18.6
18.9

19.0
19.5
19.5
19.8

20.0
20.1
20.2
20.4

20.7
20.3
20.3
20.6

21.2
21.1
21.0
21.4

21.3
21.4
21.2
21.6

22.2
21.8
21.6
21.9

36

EAC Graphics 3
Element: 3.5
Dollars In Millions

6.0

2001
AUG

Sensis Corporation DTFA01-01-C-0001 RDTE CPIF

EAC
2002
FEB MAR APR
SEP OCT NOV DEC JAN

Name: Test & Eval

MAY

JUN

JUL

4.5
4.7
4.4
4.9

4.7
5.0
4.7
5.3

4.8
5.0
4.8
5.2

5.0

4.0

3.0

2.0
LRE
CUM CPI
COST SCH
CPI*SPI

2.0
2.8
2.7
3.5

2.0
2.9
3.0
4.3

2.2
2.9
3.0
4.2

2.7
3.1
3.2
4.1

2.8
3.1
3.1
3.6

3.2
3.7
3.7
4.6

3.4
4.4
4.2
5.3

3.5
4.3
4.0
4.6

4.0
4.2
4.0
4.4

37

Summary

38

Summary
No single equation gives the correct answer
Need to evaluate a range of EACs
Need to consider

Actuals to date
Performance to date
Cost and Schedule Variances
Organizational Culture

In evaluating EACs
Look at trend charts
Compare data (CV, VAC, TCPI)
Compare statistical forecasts
39