This message was posted by Cornelius Fichtner in the name of Khurram Hussain:

Response for Scenario 1:

Well, if the question states that the project “MUST” meet the budget, then we shouldn’t be talking about the EAC in the first place. EAC comes into play when we think that we are not going to hit the budget and we need an estimate of the final costs. So I would say such a question would be ambiguous. If meeting the budget is the requirement, we should be considering TCPI as the project’s most important KPI.

We must learn two basic concepts of EAC here: First, we only talk about EAC when we have a feeling that we are not going to hit the budget. Second, we must always remember the EAC “base” formula:

EAC = AC (cost history) + ETC (future costs forecast)

AC is history, you can’t change it, it’s done! ETC is an estimate to complete the rest of the project. Now the question is, how to calculate the ETC? The selection of the formula depends on the situation of the project:

a) If we know things have slipped away in the past (we have spent more than budgeted) but now we are confident that we can meet the budget for the remaining of the activities, we will use the following formula: ETC = BAC – EV; hence EAC = AC + (BAC - EV)

b) If we know that things have slipped away in the past and the slippage is likely to continue at the current cost performance rate, we will use the formula:

EAC = BAC / CPI

Or

EAC = AC + [(BAC – EV)/CPI] …. This formula is not given in PMBOK but it is correct and both formulas will give the exact same results. It can also be proven that one can be derived from the other.

c) If we think project is behind schedule and we need more time to complete the project and due to this delay it will further increase the costs and the CPI is not the only influencing factor, then we use the following formula: EAC = AC + [(BAC-EV) / (CPI * SPI)] …. (This formula is rarely used)

d) Lastly, if we know that our initial estimates were all wrong and there is no way we can predict the final costs based on current performance and budget, we need to work up ETC again from scratch using the bottom up approach.

Response for Scenario 2:

Please don’t be confused that using either CPI or SPI in the EAC calculations helps you achieve any deadline. As I have said earlier, you calculate EAC when you know you are not going to hit the budget and want a new estimate. CPI is brought into the equation when you think that the future costs will be influence by the current performance rate. Similarly SPI will be brought in when you think that the delayed activities will cost you even more since they will now start later and the costs by that time will go up further.

Further, EAC= AC +((BAC-EV)/SPI) is not a valid formula

Response for Scenario 3:

EAC= AC +((BAC-EV)/SPI) is not a valid formula.

Scenario 4:

I covered that in the first explanation.

Final Feedback:

Your following understanding is incorrect!

Reason: The basic concept is not clear to you.

Scenario 1: EAC= AC +((BAC-EV)/CPI)? Reason : "only"

Scenario 2: EAC= AC +((BAC-EV)/SPI)? Reason : "only"

Scenario 3: EAC= AC +((BAC-EV)/CPI*SPI)? Reason : "primary" keyword is not same as only

Scenario 4: EAC= AC +((BAC-EV)/CPI*SPI)? Reason : "primary" keyword is not same as only

Please let us know if our explanations above have helped you overcome your confusion.