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Project Cost Forecasting
We’re delving into the second part of cost forecasting methods, where we previously looked at all of the different ones like estimate at completion (which we looked at in detail because there’s many different ways to to calculate that one) and now we’re going to look at the Estimate to Complete, Variance at Completion, and the To Complete Performance Index.
Now just a quick refresher, the first one for the Estimate at Completion, this will feed into our other calculations, and this is the easiest one to calculate. We’ve got the Actual Cost (AC) of $5000, plus the the Budget at Completion (BAC) of $10,000, minus the Earned Value, which is what we’ve completed so far – 30% of $10,000 or $3,000. So that is $7,000 in total plus the $5,000, equals twelve thousand dollars. So that’s what we’re going to use as our Estimate at Completion for this particular example.
Estimate to Complete (ETC)
So we’re up to the Estimate To Complete (ETC). This is the expected cost to finish all the remaining project work, and it equals our Estimate At Completion, which we said was $12,000, minus our Actual Cost so far, which is $5,000. This one is nice and easy – it’s $7,000 for this particular example of the Estimate to Complete.
Variance at Completion (VAC)
Variance at Completion (VAC) is the estimated difference in cost at the completion of our project. So variance at completion is the budget at completion (BAC), which is our $10,000 minus our Estimate at Completion, which we said was our $12,000. So we’ve got $10,000 minus $12,000 which equals -$2,000 our variance, meaning we’re going to be behind because it’s negative.
If we were positive then we’d be ahead of schedule, we would have delivered more value than we wanted. For our purposes, if it’s negative we’re behind and we’re not doing that well. If it’s positive we’re doing well.
To Complete Performance Index (TCPI)
The To Complete Performance Index (TCPI) is the efficiency that must be maintained in order to complete your project as planned, and it comes up as a basically as a 1.4, 1.2, or 1 etc. If it’s more than 1 it’s harder to complete (we need to deliver more to get it done on time), and if it’s less than 1 it’s going to be easier to complete (we need to deliver less to get it done on time).
It’s not too hard to figure out the To Complete Performance Index – it’s the Budget at Completion minus Earned Value (earned value being what we’ve earned so far or what we’ve completed). So $10,000 minus $3,000 is $7,000, and divided by the the Budget at Completion minus the Actual Cost – so $10,000 minus $5,000 is our Actual Cost (what we’ve spent so far), which equals $7,000 divided by $5,000, equals 1.4. So we’re behind, it’s going to be harder for us to complete, it’s above one. That’s the To Complete Performance Index.
And those are the remaining cost forecasting techniques that you will see on your PMP exam, and also a few little tricks on how to handle potential exam questions as you come across them.
– David McLachlan