What is Estimate At Completion in projects

Estimate At Completion (abbreviated EAC) tells you what your project will look like financially at the end of your project. It is key in many aspects, most importantly to ensure that you have control of financial outcome of your project. For long-term projects it is also an accounting requirement to have control on the Estimate At Completion to ensure proper recognition of cost (and revenue) in your project.

In this article we will go through the definition of Estimate At Completion in projects and practical tips on how companies use CostTracker to keep control on Estimate At Completion.

The definition

In simple terms, the Estimate At Completion equals the actual cost (AC) plus the Estimate To Complete (ETC).

The Estimate To Complete can be further broken down into commitments that are not yet fully invoiced (open purchase orders) and what is planned (not yet purchased).

Some also use the project budget, often referred to as Budget At Completion (BAC) to ensure control on the EAC. However, this requires that you can good control on the deviations and remaining cost to ensure the budget is updated properly when things change (which they can often do).

What are the difficulties of using spreadsheets to have control Estimate At Completion (EAC) in a project?

Often companies use spreadsheets to build a plan in the beginning of project and update accordingly when they issue purchase orders (PO) to suppliers and or when invoices are received by the supplier.

• The problematic part of this is first and foremost that it requires a lot of manual input to stay in control and thereby includes many risks of errors
  In a project many people might be involved such as project leaders, purchasers, accounting and more. For the spreadsheet solution to work it requires all functions to update accordingly and in the same way for every project. Since the information is not captured as part of their default process (for example when creating a PO) the user needs to manually remember to add the information on every update.
• Dimensional and moving data. In a project, one purchase order can result in multiple supplier invoices and expected invoice and payment dates are impacted by delivery schedules. Capturing dimensional data against is not easily done in a spreadsheet and very quickly becomes messy and understandable only for the user who created it.
• Live information – For instance, moving exchange rates might impact the cost in a project significantly and requires manual input to capture in spreadsheets.

Accounting requirements for long-term projects

Many companies are using the Percentage of Completion Method (PoC) for accounting for long term projects. This is a method that is relevant both under GAAP (Generally Accepted Accounting Principles) or IFRS (International Financial Reporting Standards) and is a method where you recognize revenue and cost in a project based on the progress in the project. However, for the progress to be measured correctly it requires that you have a reliable estimate of the total cost of the project, the Estimate At Completion.

Why is EAC not always the project budget

The Estimate at Completion (EAC) is not always the same as the project budget because it reflects the current projected cost of completing the project based on actual performance and updated forecasts, whereas the project budget is the original planned cost established at the start of the project. There are multiple key reasons why EAC and the project budget can differ such as

• Cost overruns (or savings)
• Scope changes
• Estimate revisions
• Inflation or currency fluctuations
• Unforeseen risk or issues

How you can use CostTracker to track Estimate At Completion

CostTracker simplifies EAC management by offering tools that integrate purchase planning and real-time cost tracking. Here’s how it helps:

• Purchase Planning Module – Upload your project’s purchase plan at the outset for centralized management.
• Track commitments and planned costs seamlessly.
• Real-Time Updates – Automatically adjust EAC based on actual costs, commitments, and forecasted expenses. Incorporate live data, such as exchange rate fluctuations, to maintain accuracy.
• Collaborative Platform – Allow multiple stakeholders to update and access project data within a single system, reducing the risk of errors.

By using CostTracker, companies can maintain full visibility and control over their EAC, ensuring better financial outcomes and compliance with accounting requirements.

These articles might also be interesting for you to read:

Cost control in projects: Best practices and pitfalls
10 important values you get from using CostTracker