{"id":516,"date":"2013-09-07T04:45:59","date_gmt":"2013-09-07T04:45:59","guid":{"rendered":"https:\/\/www.whizlabs.com\/pmblog\/?page_id=516"},"modified":"2013-09-07T04:45:59","modified_gmt":"2013-09-07T04:45:59","slug":"earned-value-management-forecasting","status":"publish","type":"post","link":"https:\/\/www.whizlabs.com\/blog\/earned-value-management-forecasting\/","title":{"rendered":"Earned Value Management \u2013 Forecasting"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_76 ez-toc-wrap-left counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #ea7e02;color:#ea7e02\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #ea7e02;color:#ea7e02\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-1'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.whizlabs.com\/blog\/earned-value-management-forecasting\/#Earned_Value_Management_%E2%80%93Forecasting\" >Earned Value Management \u2013Forecasting<\/a><ul class='ez-toc-list-level-2' ><li class='ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.whizlabs.com\/blog\/earned-value-management-forecasting\/#Earned_Value_Management_EVM\" >Earned Value Management (EVM)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.whizlabs.com\/blog\/earned-value-management-forecasting\/#Estimate_at_Completion_EAC\" >Estimate at Completion (EAC)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.whizlabs.com\/blog\/earned-value-management-forecasting\/#Estimate_to_Completion_ETC\" >Estimate to Completion (ETC)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.whizlabs.com\/blog\/earned-value-management-forecasting\/#Variance_at_Completion_VAC\" >Variance at Completion (VAC)<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h1><span class=\"ez-toc-section\" id=\"Earned_Value_Management_%E2%80%93Forecasting\"><\/span><span style=\"color: #000080\">Earned Value Management \u2013Forecasting<\/span><span class=\"ez-toc-section-end\"><\/span><\/h1>\n<p>This is in continuation with the article Earned Value Management \u2013Analysis, where all the definition and formula for planned value, actual cost and earned value concept was discussed in detail.<\/p>\n<p><span style=\"color: #3366ff\"><b><i>Forecasting Methods<\/i><\/b><\/span><\/p>\n<p>Forecasting involves examining the actual project performance data to date and making predictions about future project performance based on this data. According to the PMBOK\u00ae Guide, forecasting methods fall into four different categories and each category has several types of forecasting methods.<\/p>\n<ul>\n<li><b>Time series methods:<\/b> This forecasting method uses historical data to predict future performance. Earned value, moving average, extrapolation, trend estimation, linear prediction, and growth curve are some of the methods fall into this category.<\/li>\n<li><b>Causal\/econometric<\/b> <b>methods:<\/b> Causal methods are based on the ability to identify variables that may cause or influence the forecast. The methods included in this category are regression analysis, autoregressive moving average (ARMA), and econometrics.<\/li>\n<li><b>Judgmental methods: <\/b>This category of forecasting uses opinions, intuitive judgments, and probability estimates to determine possible future results. Methods within this category include composite forecasts, the Delphi method, surveys, technology forecasting, scenario building, and forecast by analogy.<\/li>\n<li><b>Other methods<\/b> Other types of forecasting methods include simulation (like Monte Carlo analysis), probabilistic forecasting, and ensemble forecasting<\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"Earned_Value_Management_EVM\"><\/span><span style=\"color: #3366ff\">Earned Value Management (EVM)<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>It is project management techniques which can be applied to all projects in any industry.EVM develops and monitor 3 key dimensions for each work package and control account: Planned Value, Earned Value and Actual Cost.<\/p>\n<table border=\"1\" cellspacing=\"0\" cellpadding=\"0\">\n<tbody>\n<tr>\n<td width=\"132\"><b>Acronym<\/b><\/td>\n<td width=\"198\"><b>Term<\/b><\/td>\n<td width=\"301\"><b>Description<\/b><\/td>\n<\/tr>\n<tr>\n<td width=\"132\">BAC<\/td>\n<td width=\"198\">Budget At Completion<\/td>\n<td width=\"301\">Total estimated budget of the project. This Value is fixed and Constant<\/td>\n<\/tr>\n<tr>\n<td width=\"132\">EAC<\/td>\n<td width=\"198\">Estimate At Completion<\/td>\n<td width=\"301\">Current Estimate of the total project cost. This value keeps on changing<\/td>\n<\/tr>\n<tr>\n<td width=\"132\">ETC<\/td>\n<td width=\"198\">Estimate To Complete<\/td>\n<td width=\"301\">From this point how much more the project would cost to complete<\/td>\n<\/tr>\n<tr>\n<td width=\"132\">VAC<\/td>\n<td width=\"198\">Variance At Completion<\/td>\n<td width=\"301\">How much over or under budget the project would be at the time of completion. Difference between actual\u00a0 Budget and Planned Budget<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>[restrict]<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Estimate_at_Completion_EAC\"><\/span><span style=\"color: #3366ff\">Estimate at Completion (EAC)<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The formula for EAC varies from scenario to scenario<\/p>\n<p>The basic formula is<br \/>\n<b>EAC= AC + Bottom up ETC<\/b><\/p>\n<p>Bottom up ETC is summation of costs of the remaining work based on the estimates from the team working on these activities.<\/p>\n<p>The base formula is<\/p>\n<p><b>EAC= AC + (BAC-EV)\/ (CPI *SPI)<\/b><\/p>\n<p><b><span style=\"text-decoration: underline\">Case I<\/span><\/b><\/p>\n<p>Assuming future performance will behave like past i.e. Typical<br \/>\nPut the value of CPI=EV\/AC in base formula and put SPI=1<br \/>\nEAC=AC + (BAC-EV) \/ (EV\/AC)<br \/>\n=AC (EV+BAC-EV) \/ EV<br \/>\n= BAC \/ (EV\/AC)<br \/>\n=BAC \/ CPI<\/p>\n<p><b><span style=\"text-decoration: underline\">Case II<\/span><\/b><\/p>\n<p>In a project if the previous calculations are not valid (atypical), remove the denominator (as both variances are atypical) the base formula, EAC will be<\/p>\n<p>EAC= AC + (BAC-EV)<\/p>\n<p><b><span style=\"text-decoration: underline\">Case III<\/span><\/b><\/p>\n<p>When cost performance is negative and schedule date must be met<\/p>\n<p>EAC= AC + (BAC-EV)\/ (CPI *SPI)<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Estimate_to_Completion_ETC\"><\/span><span style=\"color: #3366ff\">Estimate to Completion (ETC)<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>This value indicates how much more project will cost at this point.<\/p>\n<p><b><span style=\"text-decoration: underline\">\u00a0<\/span><\/b><b><span style=\"text-decoration: underline\">Case I<\/span><\/b><\/p>\n<p>Assuming future cost variance will behave like past i.e. Typical<\/p>\n<p>ETC= (BAC \u2013cum EV) \/cum CPI<\/p>\n<p><b><span style=\"text-decoration: underline\">Case II<\/span><\/b><\/p>\n<p>The formula to calculate Bottom up ETC is<\/p>\n<p>ETC= EAC &#8211; AC<\/p>\n<p><b><span style=\"text-decoration: underline\">Case III<\/span><\/b><\/p>\n<p>Assuming future cost variance are expected to be <b>atypical,<\/b> remove the denominator (as cost variance is atypical)<\/p>\n<p>ETC= (BAC \u2013cum EV)<\/p>\n<p>* cum means cumulative<\/p>\n<p>There is no need to memorize all the formula, just memorize the base formula; rest can be derived from it.<\/p>\n<p><b>Some Question and Answers<\/b> for better understanding<\/p>\n<ol start=\"1\">\n<li>You accept project costs to date and assume future cost variances to be atypical. Find EAC if<\/li>\n<\/ol>\n<p>BAC=$82500, ETC=$30000, PV=$32500, AC=$20000, EV=$25000 and Cum CPI=1.25.<\/p>\n<p>&nbsp;<\/p>\n<table border=\"1\" cellspacing=\"0\" cellpadding=\"0\">\n<tbody>\n<tr>\n<td valign=\"top\" width=\"270\"><span style=\"color: #000080\"><b><i>Solution 1<\/i><\/b><\/span><b><\/b>EAC=AC + BAC-EV=20000+82500-25000=$77,500&nbsp;<\/td>\n<td valign=\"top\" width=\"258\"><span style=\"color: #000080\"><b><i>Solution 1<\/i><\/b><\/span><b><\/b>EAC=BAC\/CPI=82500\/1.25=$66,000<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Out of these 2, first answer is correct because here use the formula of atypical variances<\/p>\n<p>&nbsp;<\/p>\n<ol start=\"2\">\n<li>You know that variances that have occurred on the project to date are not expected to continue. Find ETC if<\/li>\n<\/ol>\n<p>BAC=42,500, PV=40,000, AC=25,000 and Cum EV=32,500.<\/p>\n<p>&nbsp;<\/p>\n<table border=\"1\" cellspacing=\"0\" cellpadding=\"0\">\n<tbody>\n<tr>\n<td valign=\"top\" width=\"270\"><span style=\"color: #000080\"><b><i>Solution 1<\/i><\/b><\/span><b><\/b>ETC=BAC- cumEV=42500-32500=10,000&nbsp;<\/td>\n<td valign=\"top\" width=\"258\"><span style=\"color: #000080\"><b><i>Solution 2<\/i><\/b><\/span><b><\/b>ETC=BAC &#8211; cumEV\/CPICPI=325\/250 = 1.3ETC =(42500-32500)\/1.3=7692.3<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Out of these 2, first answer is correct because here use the formula of atypical variances.<\/p>\n<p>&nbsp;<\/p>\n<ol start=\"3\">\n<li>In a project the following data was provided by one of your team leader, BAC=$500,000, \u00a0\u00a0\u00a0PV=$325,000, AC=$275,000 and cum EV=$250,000, you are experiencing typical variances, find ETC.<\/li>\n<\/ol>\n<table border=\"1\" cellspacing=\"0\" cellpadding=\"0\">\n<tbody>\n<tr>\n<td valign=\"top\" width=\"270\"><span style=\"color: #000080\"><b><i>Solution 1<\/i><\/b><\/span><b><\/b>ETC=BAC-cumEV\/CPICPI=250\/275= .9ETC =(500K-250K)\/.9=277.7K&nbsp;<\/td>\n<td valign=\"top\" width=\"258\"><span style=\"color: #000080\"><b><i>Solution 2<\/i><\/b><\/span><b><\/b>ETC=BAC-cumEV\/CPICPI=250\/275ETC =(500K-250K)(250\/275) =275K&nbsp;<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<p>* cum means cumulative<\/p>\n<p>Both the answers are correct, so if you don\u2019t find any one option then look for the second one. In case you find both go with the second option.<\/p>\n<ol start=\"4\">\n<li>Your SVP has asked you to calculate the Estimate at Completion is going to be for very small project you are working on. You were given a budget of $3000, and to date you have spent $2000 but only completed $1000 worth of work.<\/li>\n<\/ol>\n<p>&nbsp;<\/p>\n<table border=\"1\" cellspacing=\"0\" cellpadding=\"0\">\n<tbody>\n<tr>\n<td valign=\"top\" width=\"270\"><span style=\"color: #000080\"><b><i>Solution 1<\/i><\/b><\/span><b><\/b>EAC=AC + BAC-EV=2000 + 3000 &#8211; 1000=4000<\/td>\n<td valign=\"top\" width=\"258\"><span style=\"color: #000080\"><b><i>Solution 2<\/i><\/b><\/span><b><\/b>EAC=BAC\/CPI\u00a0\u00a0 (CPI=1000\/2000)=3000\/.5=6000<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>You can quote both the answers with the scenario of typical and atypical variance depending on the project progress.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Variance_at_Completion_VAC\"><\/span><span style=\"color: #000080\">Variance at Completion (VAC)<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>How much over or under budget the project would be at the time of completion.<br \/>\nThe formula for calculating VAC is<br \/>\n<b>VAC= BAC &#8211; EAC<\/b><\/p>\n<p><span style=\"color: #000080\"><strong>Questions &amp; Answers<\/strong><\/span><\/p>\n<ol>\n<li>The Delphi method, technology forecasting, and forecast by analogy are examples of what category of forecasting methods?\n<ul type=\"A\">\n<li>A. Time series<\/li>\n<li>B. Judgmental<\/li>\n<li>C. Causal<\/li>\n<li>D. Econometric<\/li>\n<\/ul>\n<p>Correct Answer: B. the Delphi method, technology forecasting, scenario building, and forecast by analogy are all in the judgmental methods category of forecasting.<\/li>\n<li>If the Estimate at completion (EAC) is $6500, Budget at completion is $5500 and Estimate to complete (ETC) is $1200, what is the variance at completion?\n<ul type=\"A\">\n<li>A. -1000<\/li>\n<li>B. 1000<\/li>\n<li>C. 100<\/li>\n<li>D. -100<\/li>\n<\/ul>\n<p>Correct Answer: A. VAC=BAC \u2013 EAC =5500 \u2013 6500.<\/li>\n<\/ol>\n<p>[\/restrict]<\/p>\n<p><em style=\"font-size: 15px\">Take a Free Demo<b> <\/b>of<b> <\/b>Whizlabs PMP Offerings:<\/em><br \/>\n<a href=\"https:\/\/www.whizlabs.com\/pmi-project-management-professional\/pmp-mock-exam.html\">PMP Exam Questions<\/a><br \/>\n<a href=\"https:\/\/www.whizlabs.com\/pmi-project-management-professional\/pmp-online-training.html\">PMP Online Training<\/a> (with full length videos)<br \/>\n<a href=\"https:\/\/www.whizlabs.com\/pmi-project-management-professional\/pmp-certification-training.html\">PMP Live Virtual Classroom Training<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Earned Value Management \u2013Forecasting This is in continuation with the article Earned Value Management \u2013Analysis, where all the definition and formula for planned value, actual cost and earned value concept was discussed in detail. Forecasting Methods Forecasting involves examining the actual project performance data to date and making predictions about future project performance based on this data. According to the PMBOK\u00ae Guide, forecasting methods fall into four different categories and each category has several types of forecasting methods. Time series methods: This forecasting method uses historical data to predict future performance. Earned value, moving average, extrapolation, trend estimation, linear prediction, [&hellip;]<\/p>\n","protected":false},"author":145,"featured_media":715,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_uag_custom_page_level_css":"","site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[26],"tags":[],"class_list":["post-516","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-project-management"],"uagb_featured_image_src":{"full":false,"thumbnail":false,"medium":false,"medium_large":false,"large":false,"1536x1536":false,"2048x2048":false,"profile_24":false,"profile_48":false,"profile_96":false,"profile_150":false,"profile_300":false,"tptn_thumbnail":false,"web-stories-poster-portrait":false,"web-stories-publisher-logo":false,"web-stories-thumbnail":false},"uagb_author_info":{"display_name":"Sparsh Goyal","author_link":"https:\/\/www.whizlabs.com\/blog\/author\/sparsh\/"},"uagb_comment_info":0,"uagb_excerpt":"Earned Value Management \u2013Forecasting This is in continuation with the article Earned Value Management \u2013Analysis, where all the definition and formula for planned value, actual cost and earned value concept was discussed in detail. Forecasting Methods Forecasting involves examining the actual project performance data to date and making predictions about future project performance based on&hellip;","_links":{"self":[{"href":"https:\/\/www.whizlabs.com\/blog\/wp-json\/wp\/v2\/posts\/516","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.whizlabs.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.whizlabs.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.whizlabs.com\/blog\/wp-json\/wp\/v2\/users\/145"}],"replies":[{"embeddable":true,"href":"https:\/\/www.whizlabs.com\/blog\/wp-json\/wp\/v2\/comments?post=516"}],"version-history":[{"count":0,"href":"https:\/\/www.whizlabs.com\/blog\/wp-json\/wp\/v2\/posts\/516\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.whizlabs.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/www.whizlabs.com\/blog\/wp-json\/wp\/v2\/media?parent=516"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.whizlabs.com\/blog\/wp-json\/wp\/v2\/categories?post=516"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.whizlabs.com\/blog\/wp-json\/wp\/v2\/tags?post=516"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}