CPM -400: Principles of EV
Metrics & Analysis
Lesson D: Performance Index Based
Estimates At Completion (EAC)
Instructor
Keith A. Kratzert
keith.
keith.kratzert@
kratzert@faa.
faa.gov
Ph: 202202-493493-4953
IPMC 2002 Fall Conference
Professional Education Program
1
The Question
• Ask any four EVM analysts for a point estimate
for the contract cost at completion and you will
get four different answers.
• They will all be wrong!
2
Outline
• What is an EAC?
• How do we arrive at a number(s)?
• How do we know whether the estimates are
reasonable?
• What does it look like graphically?
• Summary
3
Questions Answered
Past
Present
Are
Arewe
weon
onschedule?
schedule?
Are
Arewe
weon
oncost?
cost?
What
Whatare
arethe
thesignificant
significantvariances?
variances?
Why
Whydo
dowe
wehave
havevariances?
variances?
Who
is
responsible?
Who is responsible?
What
Whatisisthe
thetrend
trendto
todate?
date?
Future
When
Whenwill
willwe
wefinish?
finish?
What
Whatwill
willititcost
costat
atthe
theend?
end?
How
Howcan
canwe
wecontrol
controlthe
thetrend?
trend?
We analyze the past performance………to help us control the future
4
Basic Terminology
R
B
I
SV
line
Contract Budget Base
$
PM
eli
s
Ba
40
ne
60
15
25
Time
WBS
30
C
A
E
VAC
BC
WP
Bas
e
M
CA
BAC
BC
WS
P
W
AC
t
Con
30
t
n
u
o
cc
A
l
ro
CV
5
What is an EAC?
6
EAC Definitions
• Actual direct costs, plus indirect costs allocable to the
contract, plus the estimate of costs (direct and indirect)
for authorized work remaining. (EVMIG)
• The current estimated total cost for program authorized
work. It equals actual cost to a point in time plus the
estimated costs to completion. (ANSI-EIA-748)
• The expected total cost of an activity, a group of
activities, or the project when the defined scope of work
has been completed. Most techniques for forecasting
EAC include some adjustment to the original estimate
based on project performance to date. (PMBOK® Guide 2000)
7
Where does an EAC come from?
Estimate at Completion (EAC)
– defined as actual cost to date + estimated cost of work remaining
– contractor develops comprehensive EAC at least annually
• reported by WBS in cost performance report
– should examine on monthly basis
– consider the following in EAC generation
• performance to date
• impact of approved corrective action plans
• known/anticipated downstream problems
• best estimate of the cost to complete remaining work
– also called latest revised estimate (LRE), indicated final cost, etc.
8
EAC Reporting
• Cost Performance Report (CPR)
– Normal method of reporting EVM information
• Cost/Schedule Status Report (C/SSR)
– Alternative for smaller programs
• OMB Exhibit 300
– New requirement for FY04 budget preparation
9
CPR Format 1
10
C/SSR
11
OMB Exhibit 300
12
Snake Chart
Element: 2200
400.0
Complete
Time Now
Dollars In Thousands
1992
MEGA HERZ ELEC & VEN F04695-86-C-0050 RDPR FPI
Cumulative Element Performance
Name: SYS ENGINEERING
1993
300.0
200.0
100.0
0.0
BCWS
BCWP
ACWP/ETC
234.6
241.0
267.4
BAC
LRE
283.4
283.4
13
Calculating an EAC
14
EAC Formula Basis
EAC = Actual Costs Accrued to Date +
Estimate of Costs to Complete
15
Contract Performance At Completion
Index-Based Formula
• EAC = ACWPcum + (BAC - BCWPcum)/Performance Index
– ACWPcum = Actual Costs to Date
– BAC - BCWPcum represents remaining work to be performed
– Performance Index is used to adjust remaining work
upwards/downwards since actual costs to date usually do not
exactly equal budgets
16
EAC Formulas
METHOD
1. CPI
FORMULA
BAC
CPIC
2. Cumulative CPI *
ACWPC +
BAC - BCWPCum
CPICum
3. Composite *
ACWPC +
BAC - BCWPCum
CPICum X SPICum
4. Weighted 1
ACWPC +
BAC - BCWPCum
.8 CPICum + .2 SPICum
5. Weighted 2
ACWPC +
BAC - BCWPCum
.5 CPICum + .5 SPICum
* The two equations defined by OMB for inclusion in Exhibit 300
17
Contract Performance At Completion
Four types of Performance Indices:
• Cost Performance Index (CPI) = BCWP/ACWP
• Schedule Performance Index (SPI) = BCWP/BCWS
• Schedule Cost Index (SCI) = SPI * CPI
• Composite Index = W1 * SPI + W2 * CPI
• Can be based on monthly, cumulative or averaged data
18
Calculating an EAC
• Given a project that has BCWS = $2,080M, BCWP = $1,491M,
ACWP = $1,950M, BAC of $4,046M, CPI of 0.76 and SPI of 0.72,
calculate the EAC using each of the formulas that we have covered.
Formula
Result
BAC/CPICum
ACWPC + (BAC – BCWPCum/ CPICum)
ACWPC + (BAC – BCWPCum/ CPICum X SPICum)
ACWPC + (BAC – BCWPCum/ .8 CPICum + .2 SPICum)
ACWPC + (BAC – BCWPCum/.5 CPICum + .5 SPICum)
19
Formula Applications
EAC Formulas vs. Contract Stages
Early & Middle
EAC = ACWP + BCWR†
EAC = BAC/CPI
EAC = ACWPcum + BCWR / CPI * SPI *
EAC = ACWPcum + BCWR / CPI(last 3 mos)
Late
EACcum = ACWPcum + BCWR / CPI *
EACcum = ACWPcum + BCWR / CPI(last 3 mos avg)
BCWR = Budgeted Cost of Work Remaining = BAC - BCWP
*The two equations defined by OMB for inclusion in Exhibit 300
†
20
Assessing EAC realism
21
Reasonableness of EACs
Assessing Reasonableness of Contractor’s EAC
To-Complete Performance Index: TCPI to BAC
TCPIBAC = (BAC - BCWPcum ) / (BAC - ACWPcum )
• Reveals level of efficiency required to complete remaining
work within budgetary goal (BAC)
• If TCPI > CPI more than 10%, and contract is more than
20% complete, then budgetary goal too optimistic
22
Reasonableness of EACs (Cont)
Assessing Reasonableness of Contractor’s EAC (Con’t)
To-Complete Performance Index - TCPI to EAC
TCPIEAC = (BAC - BCWPcum ) / (EAC - ACWPcum )
• Reveals level of efficiency required to complete remaining
work within EAC goal
• If TCPI > CPIcum more than 10%, and contract is more than
20% complete, then contractor’s EAC goal too optimistic
23
Variance at Completion (VAC) ($)
B AC
E AC
what the total job is supposed
to cost
what the total job is expected
to cost
VARIANCE
thedifference
differencebetween
betweenwhat
whatthe
thetotal
total
VARIANCEAT
ATCOMPLETION
COMPLETIONisisthe
job
jobisissupposed
supposedtotocost
costand
andwhat
whatthe
thetotal
totaljob
jobisisnow
nowexpected
expectedtotocost.
cost.
FORMULA:
FORMULA:
VAC
VAC$$==BAC
BAC--EAC
EAC
Example:
Example:
VAC
VAC$$==$4,000
$4,000--$4,500
$4,500
VAC
VAC$$==--$500
$500 (negative
(negative==projected
projectedoverrun)
overrun)
24
Variance at Completion (VAC) (%)
Convert
ConvertVARIANCE
VARIANCEAT
ATCOMPLETION
COMPLETIONtotoaapercentage:
percentage:
FORMULA:
FORMULA: VAC
VAC%
%==BAC
BAC--EAC
EAC == VAC
VAC
BAC
BAC
BAC
BAC
Example:
Example:
VAC
-13%
VAC%
%== -$500
-$500 == -13%
$4,000
$4,000
The
Thecomputer
computerhas
hasaaVAC
VACofof-$500,
-$500,
which
equates
to
-13%
which equates to -13%
25
Assess EAC Realism?
• Compare various statistical forecast for the current
month, EACs range from 6,157K to 7,040K
• Contractor’s EAC was 5,988K
PAST SIX MONTHS
From 6 period
summary
report
Statistical and Independent Forecasts
3 PER AVG
6467.8
6 PER AVG
6329.8
CUM CPI
6329.8
CUR CPI
7053.4
COST & SCH
5652.6
LINEAR REG
6383.8
PERF FACTOR
5699.8
USER EAC
0.0
CPI*SPI
6202.1
MICOM EAC
5470.0
5777.2
5800.6
5800.6
5024.3
5376.4
5934.1
5671.9
0.0
5581.9
5470.0
6719.3
6539.2
6484.3
9009.5
5455.8
6314.3
5761.5
5455.8
5767.1
5815.1
7971.4
7663.2
7568.9
9271.7
6554.9
7339.1
6322.3
0.0
7522.7
7616.3
7171.6
6883.9
6840.9
5687.4
6302.1
7056.1
6267.5
0.0
6872.5
6915.7
6603.8
6833.0
6822.4
6156.9
6446.5
7039.5
6508.7
6822.4
6855.3
6866.0
26
EAC Realism
Element: 3600
Dollars In Millions
8.0
1992
APR
MEGA HERZ ELEC & VEN F04695-86-C-0050 RDPR FPI
Estimates at Completion
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
1993
JAN
Name: PCC
Shows changes in BAC and
EAC.
Compares budget vs.
contractor’s EAC.
Software calculates EAC
based on cum CPI.
Compare this to the EAC.
7.0
Analysis: contractor
increased the budget for
this element twice.
Contractor also increased
the EAC twice, but NOT
AS MUCH as the BAC.
Based on past performance
as reflected in the Cum
CPI forecast for EAC, the
contractor’s EAC is
UNREALISTIC.
6.0
5.0
BAC
LRE
CUM CPI
5.1
5.4
5.1
5.1
5.4
5.7
5.1
5.4
5.9
5.1
5.4
6.0
5.1
5.5
6.3
5.1
5.5
5.8
5.1
5.5
6.5
5.5
5.7
7.6
5.5
5.7
6.8
5.8
6.0
6.8
27
How can you assess EAC realism?
• Method 1: look at trend chart
– compare BAC vs. EAC vs. Cum CPI forecast
– portrays size of gap between contractor’s projected
performance and past performance
Element: 3600
Dollars In Millions
8.0
1992
APR
MEGA HERZ ELEC & VEN F04695-86-C-0050 RDPR FPI
Estimates at Completion
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
1993
JAN
Name: PCC
Calculated EAC
where’s the
miracle?
7.0
6.0
Contractor’s Estimate
5.0
BAC
LRE
CUM CPI
5.1
5.4
5.1
5.1
5.4
5.7
5.1
5.4
5.9
5.1
5.4
6.0
5.1
5.5
6.3
5.1
5.5
5.8
5.1
5.5
6.5
5.5
5.7
7.6
5.5
5.7
6.8
5.8
6.0
6.8
28
Compare CV to VAC
Example 1:
CV
VAC
-6%
-13%
Example 2:
CV
VAC
-15%
-8%
Example 3:
CV
VAC
-12%
-12%
I project that performance will
get worse and result in a bigger
overrun
I project that performance will
get better. I’ll have better cost
efficiencies in the future than I
do now.
I project that performance will
stay the same
29
How can you assess EAC Realism?
• Method 2: compare following data
CPIcum (past cost efficiency)
TCPI-EAC (projected efficiency needed to come in at EAC)
RULE OF THUMB
EAC Realism View
DESCRIPTION
% Compl CV VAC VAC
BAC
LRE
EAC (CPI)
CPI
TCPI-LRE CPI to LRE
1
SYS ENGINEERING
85.04
↓
↔
0.0
283.4
283.4
314.4
0.901
2.650
-1.749
2
ENG DATA
38.51
↓
↔
0.0
32.2
32.2
44.1
0.729
1.303
-0.573
3
DATA
72.60
↓
↔
-16.0
127.0
143.0
151.5
0.838
1.055
-0.216
4
COMMUNICATIONS
34.63
↓
↔
-87.0
2,043.0
2,130.0
2,420.8
0.844
1.034
-0.190
5
PCC
28.99
↑
↔
-187.2
5,800.6
5,987.8
6,822.4
0.850
1.027
-0.177
6
PROJ MANAGEMENT
62.79
↓
↔
-34.0
1,384.6
1,418.6
1,482.1
0.934
1.056
-0.122
CPI and TCPI should
be within 10% of
each other
30
How can you assess EAC Realism?
• Method 3: Compare various statistical
forecasts
PAST SIX MONTHS
From 6 period
summary
report
Statistical and Independent Forecasts
3 PER AVG
6467.8
6 PER AVG
6329.8
CUM CPI
6329.8
CUR CPI
7053.4
COST & SCH
5652.6
LINEAR REG 6
383.8
PERF FACTOR
5699.8
USER EAC
0.0
CPI*SPI
6202.1
MICOM EAC
5470.0
5777.2
5800.6
5800.6
5024.3
5376.4
5934.1
5671.9
0.0
5581.9
5470.0
6719.3
6539.2
6484.3
9009.5
5455.8
6314.3
5761.5
5455.8
5767.1
5815.1
7971.4
7663.2
7568.9
9271.7
6554.9
7339.1
6322.3
0.0
7522.7
7616.3
7171.6
6883.9
6840.9
5687.4
6302.1
7056.1
6267.5
0.0
6872.5
6915.7
6603.8
6833.0
6822.4
6156.9
6446.5
7039.5
6508.7
6822.4
6855.3
6866.0
31
Evaluating an EAC
• Given a project that has BCWS = $2,080M, BCWP = $1,491M,
ACWP = $1,950M, BAC of $4,046M, CPI of 0.76 and SPI of 0.72,
calculate the EAC using each of the formulas that we have covered.
Formula
Result
BAC/CPICum
ACWPC + (BAC – BCWPCum/ CPICum)
ACWPC + (BAC – BCWPCum/ CPICum X SPICum)
ACWPC + (BAC – BCWPCum/ .8 CPICum + .2 SPICum)
ACWPC + (BAC – BCWPCum/.5 CPICum + .5 SPICum)
• From our previous exercise – add one additional factor:
contractor’s EAC = $4,400M
32
Estimates at Completion
• Given: Contract more than 15% complete -– Overrun at completion will not be less than overrun
incurred to date
– Percent overrun at completion will be greater than
percent overrun incurred to date
• Conclusion: You can’t recover; but you can
mitigate further damage!!
• Why: If you underestimated in the near term,
there is little hope you did better on the far term
planning
33
Survey Says…..
• over 800 programs show that .… no program
has ever improved performance better than the
following EAC calculation
EAC = BAC / CPI
at 15% complete point in program
no one pays enough attention in the
early stages!
34
EAC Graphics 1
Element: 1000
MEGA HERZ ELEC & VEN F04695-86-C-0050 RDPR FPI
EAC
Dollars In Millions
1992
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
1993
JAN
17.0
LRE
CUM CPI 15.0
COST SCH 16.0
CPI*SPI
15.0
17.0
16.4
19.4
22.8
17.0
17.3
18.0
18.9
17.0
17.4
17.8
18.4
17.1
18.6
18.2
19.1
17.1
17.0
17.1
17.1
17.1
19.0
17.5
17.7
17.3
20.0
19.9
21.7
19.4
21.2
21.2
22.1
20.8
22.3
22.2
23.2
24.0
Name: MOH-2
23.0
22.0
21.0
20.0
19.0
18.0
17.0
16.0
15.0
14.0
35
EAC Graphics 2
Element: 3
Dollars In Millions
24.0
2001
AUG
Sensis Corporation DTFA01-01-C-0001 RDTE CPIF
EAC
2002
SEP OCT NOV DEC JAN
FEB MAR APR
MAY
JUN
JUL
17.8
18.5
18.7
19.2
23.0
21.6
21.5
21.7
22.8
22.3
22.1
22.4
23.0
22.9
22.7
23.0
Name: ASDE-X
23.0
22.0
21.0
20.0
19.0
18.0
17.0
17.5
LRE
CUM CPI 18.5
COST SCH 18.7
CPI*SPI
19.2
17.8
18.5
18.6
18.9
19.0
19.5
19.5
19.8
20.0
20.1
20.2
20.4
20.7
20.3
20.3
20.6
21.2
21.1
21.0
21.4
21.3
21.4
21.2
21.6
22.2
21.8
21.6
21.9
36
EAC Graphics 3
Element: 3.5
Dollars In Millions
6.0
2001
AUG
Sensis Corporation DTFA01-01-C-0001 RDTE CPIF
EAC
2002
FEB MAR APR
SEP OCT NOV DEC JAN
Name: Test & Eval
MAY
JUN
JUL
4.5
4.7
4.4
4.9
4.7
5.0
4.7
5.3
4.8
5.0
4.8
5.2
5.0
4.0
3.0
2.0
LRE
CUM CPI
COST SCH
CPI*SPI
2.0
2.8
2.7
3.5
2.0
2.9
3.0
4.3
2.2
2.9
3.0
4.2
2.7
3.1
3.2
4.1
2.8
3.1
3.1
3.6
3.2
3.7
3.7
4.6
3.4
4.4
4.2
5.3
3.5
4.3
4.0
4.6
4.0
4.2
4.0
4.4
37
Summary
38
Summary
• No single equation gives the correct answer
• Need to evaluate a range of EACs
• Need to consider
–
–
–
–
Actuals to date
Performance to date
Cost and Schedule Variances
Organizational Culture
• In evaluating EACs
– Look at trend charts
– Compare data (CV, VAC, TCPI)
– Compare statistical forecasts
39