PROJECT MANAGEMENT (Cost Control)
15.23 In a status report, executives want to know not only where we are today, but also where we will end up. Calculating where we will end up financially is not as easy as it sounds. Selecting the wrong formula can leave the executives and customers with a faulty impression.
There are several formulas available for calculation of the estimated cost at completion (EAC). For simplicity, consider the following three formulas:
EAC = (ACWP/BCWP) x (budget at completion)
EAC = ((ACWP/BCWP) x (BCWS for work completed and in progress)) +
(planned or revised planned costs of work packages not yet begun)
EAC = (actual to date) + (all remaining work, including work in progress,
to be completed at the planned or budgeted costs)
a. Using the table below, determine the value of EAC for each of the three formulas. Assume that A, B, and C are the only work packages in the project, and BCWS(Total) is the total value for PV for each work package rather than PV for the reporting period. Use the following formula for calculating EV:
EV = (% Complete) x BCWS(Total)
| Activity |
% Complete |
BCWS(Total) |
ACWP |
| A |
100 |
1000 |
1100 |
| B |
50 |
1000 |
800 |
| C |
0 |
1000 |
0 |
b. Considering only activity B, if the reason for the cost overrun is attributed to a one-time occurrence, which of the three formulas would be best to use?
c. If the reason for the overrun in activity B is because of the higher than expected salaries of the assigned employees and these same employees will be assigned to activity C as well, which of the three formulas would be best to use?
d. Considering only activity B, if the reason for the overrun is attributed to overtime and the overtime will continue but only through the completion of activity B, which of the three formulas would be best to use?
e. Considering your answers to the above four parts, should a company be willing to change the formula for calculating EAC during the execution of the project as well as at each reporting period or gate review meeting?