# Earned Value Management: Forecasting cost

Controlling a project is key to the success or failure of the project. Earned Value Management (EVM) is a well-known technique to control the time and cost performance of a project and to predict the final project duration and cost. It is an easy tool to generate early warning signals to timely detect problems or to exploit project opportunities. An overview of the EVM metrics is given in “Earned Value Management: An overview” and the formulas are summarized in “Earned Value Management: The EVM formulary”.

In “Earned Value Management: Forecasting project outcome”, it has been shown that the general forecasting formula for predicting the final cost, known as the Expected At Completion - Cost (EAC), is equal to:

EAC = AC + PCWR
with
AC: The actual cost at the current time moment (i.e. AT = actual time)
PCWR:  Planned Cost of Work Remaining as an estimate for the future

The way the PCWR is calculated depends on the performance factor PF, which refers to the assumption made about the expected performance of the future work, as follows:

• PF = 1: Future performance is expected to follow the baseline schedule (version 1).
• PF = CPI: Future performance is expected to follow the current cost performance (version 2).
• PF = SPI or SPI(t): Future performance is expected to follow the current time performance (version 3).
• PF = SCI or SCI(t): Future performance is expected to follow the current time and cost performance. This method can be used under two versions, i.e. PF is equal to the current SCI performance (version 4) or to a weighted time and cost performance (version 4’).

In this article, more detailed information on the cost forecasting formulas and techniques is given. All formulas rely on the general formula where PCWR = BAC - EV corrected for the performance factor, as follows:

EAC = AC + (BAC - EV) / PF

Table 1 gives an overview of eight forecasting methods. Each version differs in the calculation of the PCWR and the performance factor. The 8 different EAC formulas are explained in the remainder of this article and illustrated on project data summarized in table 2. Note that versions 3, 4 and 4’ can be used under the traditional Schedule Performance Index (SPI) assumptions, or with the new Earned Schedule based Schedule Performance Index (SPI(t)).

Table 1: Overview of EVM cost forecasts
 Version 1: according to plan Version 2: according to current cost performance Version 3: according to current time performance Version 4: according to current time/cost performance Version 4’: according to weighted time/cost performance SPI EAC (PF = 1) EAC (PF = CPI) EAC (PF = SPI) EAC (PF = SCI) EAC (PF = 0.8*CPI + 0.2 SPI) SPI(t) EAC (PF = SPI(t)) EAC (PF = SCI(t)) EAC (PF = 0.8*CPI + 0.2 SPI(t))

Project example

In table 2, all forecasting methods have been calculated based on fictitious project data with a planned duration PD = 9 weeks, a project finish with two weeks delay, a total budget BAC = € 150.00 and a real total project cost of € 210.00, as discussed in “Earned Value Management: Reliable time performance measurement”. The PVrate is equal to € 150 / 9 = € 16.66 per week. The SPI, SPI(t) and CPI values are also given to allow the reader to calculate the EAC(t) predictions.

Table 2: Overview of EVM cost forecasts (example)
 W1 W2 W3 W4 W5 W6 W7 W8 W9 W10 W11 PV 5.00 10.00 25.00 55.00 85.00 120.00 130.00 140.00 150.00 150.00 150.00 AC 10.00 20.00 30.00 75.00 120.00 155.00 170.00 195.00 200.00 205.00 210.00 EV 3.33 6.67 10.00 22.50 70.00 82.50 90.00 120.00 130.00 140.00 150.00 ES 0.67 1.33 2.00 2.83 4.50 4.92 5.14 6.00 7.00 8.00 9.00 SPI 0.67 0.67 0.40 0.41 0.82 0.69 0.69 0.86 0.87 0.93 1.00 SPI(t) 0.67 0.67 0.67 0.71 0.90 0.82 0.73 0.75 0.78 0.80 0.82 CPI 0.33 0.33 0.33 0.30 0.58 0.53 0.53 0.62 0.65 0.68 0.71 EACV1 156.67 163.33 170.00 202.50 200.00 222.50 230.00 225.00 220.00 215.00 210.00 EACV2 450.00 450.00 450.00 500.00 257.14 281.82 283.33 243.75 230.77 219.64 210.00 EACV3-SPI 230.00 235.00 380.00 386.67 217.14 253.18 256.67 230.00 223.08 215.71 210.00 EACV3-SPI(t) 230.00 235.00 240.00 255.00 208.89 237.37 251.67 235.00 225.71 217.50 210.00 EACV4-SCI 670.00 665.00 1,080.00 1,113.89 286.53 339.46 333.70 251.88 235.50 220.69 210.00 EACV4-SCI(t) 670.00 665.00 660.00 675.00 272.38 309.76 324.26 260.00 239.56 223.30 210.00 EACV4’-SPI 376.67 378.33 433.85 471.19 246.71 274.83 276.76 240.20 228.85 218.64 210.00 EACV4’-SPI(t) 376.67 378.33 380.00 409.06 243.71 269.47 275.18 241.71 229.61 219.16 210.00

It should be noted that the EAC method with a PF = 1 provides cost forecasts which lie closer to the real project cost (€ 210.00) than the other methods. However, this table only serves as an example table, and therefore, results cannot be generalized. More information on the accuracy of forecasting methods can be found in “Predicting project performance: Evaluating the forecasting accuracy”.

© OR-AS. PM Knowledge Center is made by OR-AS bvba Contact us at info@or-as.beVisit us at www.or-as.beFollow us at @ORASTalks