Budget at Completion (BAC)

Budget at Completion formula PMP® Exam Topic

One of the critical concepts within the Earned Value area of formal project management is
Budget at Completion (BAC). The Project Management Institute (PMI)’s Project
Management Professional (PMP)® certification exam may include questions about, or
driven by, the earned value (EV) performance calculations, including BAC. The great news is
there is not a Budget at Completion formula to learn. For project managers seeking the
“PMP BAC definition,” it is this: the original project budget.

On this page:

• Determine Budget at Completion (BAC)

• Analogous Estimation
• Expert Judgement
• Parametric Estimation
• Pros and Cons of BAC Analysis
• How BAC fits into Earned Value and PMP® Certification Exam
• Sample BAC topic PMP® certification exam questions

PMP® Exam Formula Cheat Sheet

Learn how to successfully use project management formulas after reading this cheat sheet.

Determine Budget at Completion (BAC)

The PMI’s A Guide to Project Management Body of Knowledge (PMBOK® Guide) – Sixth
Edition, includes control cost processes enabling forecasting of the project’s completion
from a budgetary lens. The PMBOK® Guide gives this definition of BAC: “the sum of all
budgets established for the work to be performed.” At the most basic level for example, if
the original project budget is $25,000, then the project’s BAC is $25,000. Another way to
think of the Budget at Completion formula “is the value that PV is planned to reach at
completion.”

Rather than thinking of the concept as the “BAC PMP formula,” it should be viewed as
understanding what Budget at Completion is as a definition and how to determine it.
Consider these elements for the Budget at Completion value:

• Determined at project start based on work planned

• Used with Planned Value (PV) to determine budget’s status against planned
• Compared to Estimate at Completion (EAC) at point of analysis based on expected
future work
• Expressed in cost units (any currency)

Although there is not a BAC formula, the BAC value is used in many Earned Value formulas.
The accuracy of the BAC has many downstream impacts within the Earned Value
calculations. There are three main techniques for determining the BAC: analogous
estimation, expert judgment, and parametric estimation.

Analogous Estimation
An analogy is where you take one idea to explain or clarify something similar. The
comparison of like things to find meaning, or in the project management context, budget,
can be forecasted as an analogous estimation.

BAC Analogous Match a project’s tasks and deliverables to a similar project’s tasks and
Technique Estimation deliverables; use the actual costs from the matched project to determine BAC
The BAC technique of analogous estimates can help with projects in which there is limited
information for the current work if the project manager has a deep understanding of the
current work and the compared work. Rather than spending time researching and trying to
figure out everything from the beginning, analogous estimation is a way to “fast track”
budgeting and leverage the actual and known costs of a previous project.

And yet, Project Managers must have a strong understanding of their project to successfully
use Analogous Estimation, because if the project compared is not similar or does have
enough similarities, the estimate may lead to problems later. Or, there may not be a project
of a similar nature in which budgets can be compared. In those instances, project managers
should find similarities where they can, in terms of segments of past work, work activities
from past work, or similar materials from past work.

As part of the PMP certification exam questions about BAC, project managers may be asked
when to use analogous estimation to determine BAC.

Expert Judgement
Project managers looking to establish a BAC will sometimes depend on the input of experts
to determine the budget at completion. This BAC technique is known as “expert judgment.”

BAC Expert Obtain estimates from experts and subject matter experts knowledgeable of the
Technique Judgement project’s components and costs
The expertise of the subject matter expert can be based on the “training or educational
background, career experience, or knowledge of the product/market.”
When using Expert Judgment as a way to determine Budget at Completion, include groups
with specialized skills such as professional organizations or industry associations. These
experts can provide ideas and the probability of occurrence based on experience. There is
not a formal method for establishing BAC when getting information from the experts, but
there are commonly used approaches for data collection: brainstorming with a group of
experts, interviewing experts, sending targeted surveys to experts.

Conducting interviews and brainstorming sessions can be an extended process that can
take some time. It is also possible the expert will give faulty estimates to present a more
efficient project than was the actual case. On the good side, the budget estimate could be
more accurate due to the insights and lessons learned from the expert.

Parametric Estimation
The BAC definition encompasses the “Parametric estimation” technique. For estimates of
budget, cost, and project duration, the project manager will “break down the project into sub-
components and match them with the appropriate equation to obtain the estimates.”

BAC Technique Parametric Estimate The statistical relationship between historical data and variables
Consider this example from plainsware.com of a parametric estimate for budget at
completion:

Let’s say your project includes carrying out a survey of 300 people. Each interview contains 20
multiple-choice questions, and past experience has shown they take 10 minutes to administer.
According to parametric estimation, the total effort for this task will be:

E = nb of interviews × 10 minutes = 3000 minutes = 5 hours

A PMP® credential holder knows there several ways to source the parametric
value: previous internal project, previous external project, and industry data. Access to and
the quality of data from each source is dependent upon the industry and size of the
company.

Pros and Cons of BAC Analysis

Those who hold the PMP® certification may look to the PMI’s resource library for insights
on the BAC definition and formula. As a budget tool, the BAC is simply: “the amount of
resources estimated as necessary to complete the work described in the scope statement.”

Pros of BAC Analysis

• Analogous Estimating can be conducted early in a project when not all details are
very defined.
• Expert Judgement can reduce risks as it uses lessons learned from those with
experience.
• Parametric Estimating can be very accurate based on actual costs of similar scope.

Cons of BAC Analysis

• Analogous estimating as the scope is more refined, the estimate must be reworked
over and over.
• Expert Judgement can be biased leading to inaccuracies or blind spots in the budget
estimate.
• Parametric estimating is only as accurate as the data and calculations used to
determine it.

How BAC fits into Earned Value and PMP® Certification

Exam
Project Managers should not simply search the term “BAC PMP” to prepare for the PMP
certification exam. Instead, know BAC questions are likely to be about the BAC techniques
and how BAC fits into the larger earned value practice. In the provided Earned Value
Terminology chart, BAC is highlighted for easy reference.

amount spent on the

Actual Cost AC the actual cost of the project
project

cost of the project

Actual Cost of Work cost of the project completed within a specific
ACWP completed within a specific
Performed time
time

Budget At
BAC total of budget total of budget
Completion
 Budgeted Cost for % Work Complete x
BCWP also EV; the amount of work actually completed
Work Performed Budget

Budgeted Cost for Planned % complete x

BCWS also PV; value of the work completed to date
Work Scheduled BAC

Cost Performance cost variance; CPI < 1 = over budget, CPI > 1 =
CPI EV / AC
Index under budget

amount of project budget over or under budget;

Cost Variance CV EV – AC
CV < 0 = over budget, CV > 0 = under budget

% Work Complete x
Earned Value EV also BCWP; amount of work actually completed
Budget

Estimate at expected budget at project end based on variances

EAC AC + BAC – EV
Completion that have occurred

Estimate to Complete ETC expected cost to finish remainder of project EAC – AC

Planned % complete x
Planned Value PV also BCWS; value of the work completed to date
BAC

Schedule schedule variance; SPI < 1 = behind schedule, SPI

SPI EV/ PV
Performance Index > 1 = ahead of schedule

amount of project work ahead or behind schedule;

Schedule Variance SV SV < 0 = behind schedule, SV > 0 = ahead of EV – PV
schedule

Variance at
VAC forecasted cost variance at end of project BAC – EAC
Completion
Earned Value Terminology and Formulas
As part of the PMP certification exam questions, project managers may be asked when to
use BAC which technique or be provided a scenario in which a formula for one earned value
tool is needed in addition to the BAC to analyze the data.

Sample BAC PMP® Certification Exam Questions

Question A B C D

You are the project manager of the Everest

Consulting Project. The project has a budget of
280,000 290,000 300,000 870,000
$290,000 and is expected to last three years. The
project is now ten percent complete and on
 schedule. The project is currently $10,000 over
budget. What is the BAC?

You are the project manager on an agile team that

has been hired by a federal government agency to
develop and implement a new invoicing system.
As expected, the agency expects to receive
The project The project is The project The project is
periodic Earned Value reports each month that will
is on ahead of is behind ahead of
be reviewed by senior staff. Your first report
schedule and schedule and schedule and schedule and
covers the work completed for the first two 2-week
over budget under budget over budget over budget
sprints. The numbers on the report include BAC =
$500,000, EAC = $495,000, AC = $15,000, PV
(based on story points) = $20,000, EV = 21,000.
Which of the following is true?
Answers are located at the bottom of the page.
Studying for the PMP Exam?

Practice Questions for PMP Formulas

Conclusion
The Budget at Completion (BAC) is part of the Earned Value (EV) terms and formulas used
by Project Managers Professionals (PMP) to manage the cost process. Although BAC does
not have a formula, the BAC is needed to complete many EV formulas. Project Managers
must use their own knowledge to determine which BAC technique to use for a project.

Answers

1. B. The BAC is the budget at completion, which is given to you in the question.
2. B. Since BAC > EAC, the project is under budget by $5000. Since EV > PV, the project
is ahead of schedule (more story points were completed than planned in the first two
sprints).