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Estimate at Completion (EAC)

APMT 030

DAU GLOSSARY DEFINITION

The current estimated total cost for program authorized work. It equals Actual Cost of Work Performed plus the estimated costs to complete (Estimate To Complete (ETC)) the authorized work remaining. EAC does not include profit or fee.

Alternate Definition

The Estimate at Completion (EAC) is the current estimated total cost for program's authorized work. It equals Actual Cost of Work Performed (ACWP) to date plus the estimated cost to complete (Estimate To Complete (ETC)) the remaining work. EAC does not include profit or fee.

Alternate Definition Source

DoD Earned Value Management System Interpretation Guide (EVMSIG)

General Information

The estimate at completion, or EAC, is an independent forecast of what it will cost to complete any given level of the Work Breakdown Structure (WBS). The key word is independent. The contractor's EAC has also been called the Latest Revised Estimate (LRE) and is normally derived from updating EACs at the control account level and summarizing up the WBS structure allowing for an EAC at any level.

In addition to the contractor's EAC, the government uses formulas based on contractor performance metrics to calculate EACs. These formulas can be used to predict the Estimate at Completion (EAC) based upon the past history of contractor performance on the contract (e.g., cost and schedule efficiencies). These EAC predictions are very useful to a program manager assessing whether sufficient funds are available to cover the cost of the contract at completion.

The earned value EAC formula is based on the simple concept that the estimate at completion is equal to the amount of money already spent on the contract plus the amount of money it will take to complete the contract. Translating this into the language of EVM; money already spent is ACWP, and money needed to complete the contract is based on budgeted cost for work remaining (calculated as BAC -BCWP), or BCWR, divided by a performance factor. This results in the standard EVM EAC equation: EAC equals the ACWPcum plus the result of the BAC - BCWP divided by the selected performance factor. In practice all EVM related EACs are computed with this equation, the only thing that changes is the performance factor. The performance factor should be the cost efficiency expected for the work remaining.

The cost performance index and the schedule performance index are the efficiency metrics associated with EAC performance factors. Performance factors take one of three forms. The first is the single index performance factor such as the cumulative CPI, three period CPI, or six period CPI. The second form is the composite index. This type of index usually includes SPI. The most common composite performance factor is the DAU gold card composite performance factor which is the cumulative CPI times the cumulative SPI. The third form of the performance factor is the weighted index performance factor. One of the more common weighted performance factor uses a 80:20 formula. This performance factor is computed by adding eighty percent of the cumulative CPI to twenty percent of the cumulative SPI.

Since we are dealing with estimates, it is a good practice to establish an EAC range. An EAC range is established by applying different performance factors to the EAC equation. Frequently this range is based on these two equations: the first is the EAC CPI which uses the cumulative CPI as a single performance factor and the second is the EAC composite which uses the cumulative CPI times the cumulative SPI as the performance factor. The EAC based on the cumulative CPI performance factor generally represents the floor of the EAC range. The EAC based on the composite performance factor generally represents the upper end or ceiling of the EAC range. An EVM analyst should base his or her EAC range and most likely EAC on an integrated program management analysis which incorporates: risk, CPI trends; SPI trends; technical performance; schedule progress, Cost As an Independent Variable (CAIV) and other program information.

 

CUMULATIVE CPI METHOD ('floor'):

EAC = ACWPcum + [(BAC - BCWPcum)/CPIcum]

COMPOSITE METHOD ('ceiling'):

EAC = ACWPcum + [(BAC - BCWPcum)/(CPIcum x SPIcum)]

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