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Budget at Completion (BAC)

APMT 010

DAU GLOSSARY DEFINITION

The sum of all authorized budgets for the contract scope of work. The project's scope of work forms the performance measurement baseline (PMB), which projects the cost to complete the entire program. The BAC equals the sum of all the allocated budgets plus any undistributed budget - management reserve and profit/fee are not included in the BAC.

Alternate Definition

The Budget at Completion (BAC) is the sum of all budgets established for the contract through any given WBS/OBS level. When associated with a level it becomes control account BAC, Performance Measurement Baseline BAC, etc.

Alternate Definition Source

DoD Earned Value Management System Interpretation Guide (EVMSIG) (14 Mar 2019)

General Information

Budgets at completion (BACs), are established early in the contract at the control account level but can be rolled up and reported at any given level of the Work Breakdown Structure (WBS). The Control Accounts represent the total budget from which individual period Budgeted Cost for Work Scheduled (BCWS)values are derived.  The budgets for all authorized work must be captured within the BAC.  The BAC also includes any Undistributed Budget (UB) that might be logged.

 


Figure 1

 

The Defense Acquisition University (DAU) identifies five independent Earned Value Management (EVM) variables: BCWS, BCWP, ACWP, BAC, and EAC. All earned value metrics are derived from these five variables. The chart in Figure 1 can be used to visually represent BAC and its relationship with the other independent variables.

 

Under EVM industry standard EIA-748, companies are expected to plan and organize their work efforts into small work packages, typically 30 to 60 days in duration. Far term effort is budgeted in planning packages and summary level planning packages. These work elements are related to each other by an Integrated Master Schedule (IMS).

 

For each work package, the contractor determines a budgeted cost for completing that work and sets a date for starting and completing the work package.

 

When arrayed over the period of performance for the contract, the budgeted work packages combine to form a time-phased Performance Measurement Baseline (PMB) curve. As shown in Figure 1, at the end of the contract, the PMB terminates at the Budget at Completion (BAC). At any point in time during the period of performance of the contract, this curve represents the cumulative total of the Budgeted Cost for Work Scheduled (BCWScum) for the contract. A contractor will not budget the entire amount of the contract cost, or the Total Allocated Budget (TAB), but will reserve some budget as Management Reserve (MR) for tasks that may need to be added later (i.e. realized risks/unknowns within the currently authorized specific scope of work in the contract). Management Reserve is not part of the PMB until it is used, when it becomes part of the PMB.

 

The principle of earned value is that at any time during the performance of the contract, identified as a status date, the earned performance of the contractor can be compared to the PMB and conclusions drawn about the contractor’s performance with respect to schedule.

 

The contractor reports the budgeted cost for all work packages completed/performed for the contract up to a given status date. This is the cumulative Budgeted Cost for Work Performed (BCWPcum), or earned value. If the contractor has not completed all the scheduled work packages planned through the status date, then the BCWPcum will be less than the BCWScum, representing a “monetized” indication that the contractor has completed less work than scheduled, known as Schedule Variance (SV). It is important to understand that we cannot infer from EVM data alone how far the contractor is behind schedule. We would have to use other analysis tools (e.g., network techniques such as Critical Path Method (CPM) in conjunction with the Integrated Master Schedule (IMS) to forecast when the work on the contract will be complete.

 

In addition to reporting the BCWPcum, the contractor also reports the cumulative Actual Cost of Work Performed (ACWPcum) for the work packages that have been completed. The difference between the BCWPcum and the ACWPcum is the Cost Variance (CV). If the actual costs at time now (i.e., ACWPcum) are higher than the earned value at time now (i.e., BCWPcum), we know that the contractor is currently over running cost and that the contractor’s Estimate at Completion (EAC) may be higher than the BAC.

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