HKSM

Cost forecasts estimate the total expected cost and funding needs of a project based on current performance, approved changes, and trends. They typically include EAC, ETC, cash flow projections, and variance at completion to support decisions and control.

Definition

Refer to the short definition above.

Key Points

• Summarizes expected total cost (EAC), remaining cost (ETC), and variance at completion (VAC).
• Uses current performance data (e.g., EV, AC, CPI) and approved changes to project future costs.
• Often time-phased to show funding needs and cash flow by period.
• Updated regularly and after significant changes or risk events.
• May include ranges and confidence levels when uncertainty is high.
• Supports governance, change decisions, and stakeholder communication.

Purpose

Provide a forward-looking view of what the project is likely to cost so leaders can plan funding, decide corrective actions, and assess viability against constraints. Cost forecasts translate performance trends and known changes into actionable financial expectations.

Data Sources

• Cost baseline and budget at completion (BAC).
• Actual cost (AC), earned value (EV), CPI/SPI, and trend charts.
• Approved change requests and updated scope or schedule.
• Risk register, contingency usage, and risk cost exposure.
• Vendor invoices, contract terms, and committed spend.
• Resource rates, productivity metrics, and procurement lead times.
• Organizational funding limits and fiscal calendars.

How to Compile

• Confirm the as-of date, BAC, AC to date, EV, and current CPI/SPI.
• Select a forecasting method aligned to conditions: - EAC = BAC / CPI (if current cost performance is expected to continue). - EAC = AC + (BAC - EV) (if past variances are atypical; future expected at plan). - EAC = AC + (BAC - EV) / (CPI × SPI) (if cost and schedule inefficiencies both persist). - EAC = AC + bottom-up ETC (if scope, rates, or plans significantly changed).
• Compute ETC = EAC - AC and VAC = BAC - EAC.
• Time-phase the forecast into monthly or weekly cash flows based on the schedule and resource plan.
• Document assumptions, constraints, known changes, and risk-based reserves.
• Optionally develop a range forecast (e.g., P50/P80) using scenario or Monte Carlo analysis.
• Review with finance and key stakeholders; baseline the latest version for reporting.

How to Use

• Compare EAC to BAC to determine expected overrun or underrun and trigger thresholds.
• Align funding releases and cash flow with the time-phased forecast to avoid shortfalls.
• Identify drivers of variance and initiate corrective or preventive actions.
• Inform change control decisions and evaluate alternative scenarios.
• Update risk exposure and reserves based on forecast trends and uncertainties.
• Communicate concise insights to sponsors and governance bodies.

Sample View

• As-of date: 15 Jun.
• BAC: 1,000,000; AC: 420,000; EV: 360,000; CPI: 0.86.
• Method: EAC = BAC / CPI; EAC: 1,162,790; ETC: 742,790; VAC: -162,790.
• Time-phased cash flow (next 3 months): 180,000; 220,000; 210,000.
• Range: P50 EAC 1.14M; P80 EAC 1.20M; key assumption: productivity stabilizes in 4 weeks.
• Notes: Two approved changes included; pending claim not included.

Interpretation Tips

• Negative VAC indicates a likely overrun; investigate root causes before acting.
• Choose the EAC method that best reflects expected future conditions, not just past results.
• Track trends over time; consistent improvement or deterioration matters more than a single point.
• Use range forecasts when risks or market rates are volatile.
• Validate that time-phased forecasts respect funding limits and fiscal boundaries.
• Keep assumptions explicit so stakeholders understand what could shift the forecast.

PMP Example Question

A project has BAC = 2,000,000, AC = 900,000, EV = 720,000, and no scope changes are planned. Performance issues are expected to continue. Which forecast best estimates total project cost?

1. EAC = AC + (BAC - EV).
2. EAC = BAC / CPI.
3. EAC = AC + bottom-up ETC after re-estimating all remaining work.
4. ETC = BAC - EV.

Correct Answer: B — EAC = BAC / CPI.

Explanation: When current cost performance is expected to persist, using BAC/CPI is appropriate. It projects the total cost assuming the existing CPI continues.