6 Steps to an Accurate EAC
You’ve probably heard somewhere along the lines that having an accurate Estimate at Completion (EAC) is akin to gold, right? Well, I’d have to agree. Why? Because your EAC is the catalyst for a broad range of business functions, and it serves as the basic building block for project forecasting (and we all know that accurate project forecasting = an increased likelihood of on-time, on-budget delivery).
But just how does one go about creating an accurate EAC? All you need is six easy steps (and one pre-step):
Pre-Step: Create your project baseline.
Before you can create your EAC, you must create a good, accurate project baseline. A good baseline includes project scope, schedule and cost. You must also have a process to see how your baseline is changing over time, because your baseline is the standard you will track to – which in turn becomes your EAC. Or simply put, you have your baseline and you have your working plan, and your EAC is the comparison of the two.
Step 1: Time-phased estimates.
Now that the pre-work is done, it’s time to get down to the nitty gritty of creating your EAC. The first step is to create time-phased estimates for your project. Most projects are performed over long periods of time, and resources will change depending on the project phase…as will direct costs. So understanding how you will accomplish the work period by period will play directly into your EAC. You need to time-phase your estimates over the life of your project. A good rule of thumb is to time-phase monthly, at a minimum. Forecasting monthly gives you the ability to look at your estimates by quarter, year, government fiscal year, or any combination you need.
Step 2: Integrate your schedule with costs.
A schedule tells the Project Manager when the work starts and ends and the sequencing of the work to be performed. Cost gives the ability to monetize the schedule, keeping the integrity of the dates and resources needed to finish the project. So it is very important to have cost/schedule integration so the two can be in perfect symbiosis. A best practice is to resource-load the schedule for both the baseline schedule as well as the forecast at the task level. Resources and dates are passed from the schedule into the cost system and assure that the time phasing of the Baseline and the EAC is accurate and complete.
Step 3: Plan for risks and contingencies.
Project Managers tend to be optimistic and want to plan for the best hoping that nothing goes wrong. The reality is that something will almost always go wrong. So risk and opportunities management should be a basic part of your project culture. Obviously there is no way to mitigate EVERY risk, but the risks you decide have the largest impact should be included in your schedule and hence forth will be in your cost system and also your EAC.
Step 4: Accommodate differences in rates.
Oftentimes the rates you proposed on the project will be different than the actual rates. Budget rates may also differ from forecast rates, and forecast rates can be different year over year. Having the ability to apply multiple rate decks to your direct cost offers a huge benefit. The key is to make sure your system can handle multiple, different rate decks so that you can help your business bid more accurately, understand how the overall business expenditures are affecting your projects, and help your project manager manage his/her overall cost picture.
Step 5: Perform What-if scenarios.
Performing what-if scenarios is critical during every phase of the project so that you can get a good handle on the alternate routes your project may take to execution. It’s important to ask questions like “What if my rates go up?” or “What if I outsourced instead?” Knowing the impact these answers will have on your plan at every stage of the project will go a long way to creating a more accurate EAC.
Step 6: Plan from the top-down.
Planning from the top-down means starting with a target (i.e. a delivery date or a budget number) and working backward to build your plan. The value of top-down planning is being able to answer the question, “Here’s where I’m trying to end up – what’s the best way for me to get there?”
That’s it! Six simple steps to an accurate EAC. An accurate EAC serves as your project GPS—it will tell you where you’re going, how you’re going to get there, if there are obstructions in the way of getting you there, and when you’ll arrive. It will even tell you if there are better, alternate routes to execution.
If you’re interested in learning more, I encourage you to download our recent white paper on the topic, or contact us to set up a more personalized discussion.
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