The VAC will tell you one thing: How much over or under budget will you be, when the project is done. The good news is, that there is only one formula to know:
VAC = BAC-EAC
All in all, there is no easy way to remember these forecasting formulas. You must memorize them and you must also memorize in which circumstances to use them. You simply have to know them. So if I tell you: "Variances on your project are typical. How do you calculate the ETC?" You have to be able to tell me that the formula is: ETC = (BAC-EV) / CPI
Q.Please can someone explain to me why ETC=(BAC-EV)/CPI in the example provided above( under Variance at complition)
Thanks in Advance,
1. Atypical - Wherein you absorb the variance. That means whatever cost variances you have observed until that point, they will NOT continue further as they were an exception and as such the remaining work will be done within the original budget for that work.
2. Typical - here you take the new trend into account. Which is what's the case in your example above. In this case you expect the newly calculated cost variance to remain the same until the entire work is completed and accordingly increase or decrease the budget for the remaining work. Therefore in this case, the remaining work (BAC-EV) divided by the new CPI will give you the ETC.
3. Erroneous - this is case where in you realise your estimations were all wrong and basically you re-estimate all of them based on your remaining work.
Let me know if you need further clarification. I hope I was clear in my explanation.
If you are a customer of the PM PrepCast I highly recommend that you watch the earned value management videos on this (L07.05.1 , L07.05.2). It is very clear and contains all the information you need for the exam, also it will make you understand the formulas.
ETC is the Estimate to Complete, it is the estimated cost to finish all the remaining project work.
calculating ETC has 2 formulas:
1. Assuming work is proceeding on plan, ETC = EAC – AC
where EAC is the Estimate at Completion and AC is the Actual Cost.
2- assuming work is not going as planned in such case ETC is simply the re-estimate of the remaining work. ETC = Re-Estimate.
Regarding the EAC, you will need to calculate this to come up with ETC, it is the expected total cost of completing all work expressed as the sum of the actual cost to date and the estimate to complete. based on the situation and the current project status, EAC has the below formulas.
1. If the CPI is expected to be the same for the remainder of the project, EAC = BAC/CPI
2. If the future work will be accomplished at the planned rate, EAC = AC + BAC – EV
3. If the initial plan is no longer and you will have to estimate, EAC = AC + Bottom-up ETC
4- If both the CPI and SPI influence the remaining work, EAC = AC + [(BAC – EV)/ (CPI x SPI)]
In the example you referred to
ETC = EAC - AC
where EAC = AC + [(BAC – EV)/ (CPI x SPI)] and
if we substitute both equations you will come up with
ETC = (BAC-EV) / (CPI x SPI)
and for some reason your example assumed SPI is 1 or just ignored it and came up with ETC = (BAC-EV) / CPI
I hope this will help you understand these formulas.
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This interview with Simona Fallavollita (LinkedIn Profile) was recorded at the magnificient Project Management Institute (PMI)® Global Conference 2017 in Chicago, Illinois. We discuss the how, what, why and when of the changes that are coming to the PMP exam.