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The Estimate at Completion - A Project Management Best Practice

Project managers are continually asked by company management and the customer

to verify that the projecst cost and schedule goals can be met within the authorized

budget, the Budget at Completion (BC!, and the Planned Completion "ate (PC"!#

$he %stimated at Completion (%C! and the %stimated Completion "ate (%C"! are

the measures used to provide the answers to this &uestion#

$he %arned 'alue uidelines de)ne the %C as the sum of the contract*s cumulative

to date ctual Cost of +ork Performed (C+P! plus the company project manager*s

best estimate of the timephased resources (funds! re&uired to complete the

remaining authorized work, the %stimate to Complete (%$C!# $his relationship is

often e-pressed by the formula %C . C+P / %$C# $hus, the %C is a forecast of

the project*s )nal cost# $he project manager may revise work priorities, replan

remaining tasks on the project schedule and0or adjust the technical approach to

complete the project*s goals within the estimated remaining resources# $he goal is

to complete all of the contract work scope within the Contract $arget Cost (budget!

and Contract Completion "ate (schedule!#s with all estimates, the level of uncertainty of an %C will vary with the type of

remaining work, the available information, and the perceived remaining risks#

Prudent management needs to know how valid an %C is, especially when the %C

varies signi)cantly from the project*s authorized budget (BC!# $hus, the objectives

of project management include the identi)cation of the level of uncertainty

associated with the remaining schedule, establishing the cost estimate for the

remaining work, and managing the impact of the uncertainty upon the project cost

goals#

1or these reasons, the Contract Performance 2eport (CP2! and the 3ntegrated

Program 4anagement 2eport (3P42! re&uire three separate %Cs in an attempt tocapture information regarding the level of cost uncertainty or the magnitude of the

known project risks# $hese reports re&uire %Cs which represent the Best Case (or

lowest potential cost!, the +orst Case (or highest potential cost! and the 4ost 5ikely

%C (the project manager*s best estimate! with their respective forecasted

completion datesgenerally referred to as %stimated Completion "ates (%C"s!#

nother important factor to consider regarding realistic %Cs and customer

reporting is the 6arbanes07-ley ct# 8nrealistic %Cs reported in publicly owned

companies are subject to the conse&uences of this ct# $he 6arbanes7-ley ct

came into force in 9uly :;;: and introduced major changes to the regulation of

corporate governance and )nancial practices# +ith regard to periodic statutory

)nancial reports (i#e#, Company nnual 2eports! the ct re&uires that a companyinclude certi)cations that< $he )nancial statements and related information fairly

present the )nancial condition and the results in all material respects# 1inancial

statements published by issuers are re&uired to be accurate and presented in a

manner that does not contain incorrect statements# =ote that the )nancial

information on CP2s and 3P42s directly feed corporate annual reports and that

serious overrun or underrun conditions will e>ect the pro)t statements in these

reports# $he ct also imposes penalties and )nes and0or imprisonment for altering,

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destroying, mutilating, concealing, falsifying records, documents or tangible objects

with the intent to obstruct, impede, or in?uence a legal investigation#

6ince the actual cost to date is a known value, %C uncertainty is a function of the

%stimate to Complete# $he %$C is prepared by reestimating the resources re&uired

to complete the remaining authorized work using the cost e-perience to date and

then applying a number of other factors@ such as current direct and overhead rates,6chedule 2isk ssessment (62!, 4onte Carlo simulations, root cause analysis, etc#

well conceived %$C also considers purchase order commitments, anticipated labor

eAciency and rate, material price and usage, 7ther "irect Cost (7"C! price and

usage performance, risk and opportunities, resources by type, and other factors

identi)ed by higher management# dditionally, as the %$C is being developed it

should be mapped to the current schedule consistent with the %stimated

Completion "ate (%C"!#

s a means to crosscheck the %C, a mathematical or independent estimate of the

%C is typically prepared using performance indices based upon the cost and

schedule e-perience to date# 1or e-ample, the Cost Performance 3nde- (CP3!(cumulative Budgeted Cost for +ork Performed 0 C+P! can be used to complete

the %C by dividing the project BC by the CP3# $he resulting %C is often referred

to as the

%'46 %ducation Center 3ndependent %C (3%C! to distinguish it from a formal or

grass roots %C# $he 3%C can be &uickly prepared and then used to test the

reasonableness of the current cost estimate and to indicate when a comprehensive

%C should be undertaken# 3t is important to note that these calculations do not

consider any thinking about the considerations mentioned above with respect to

anticipated labor eAciency and rate, risk and opportunities, 62, etc# 3t is often said

that they are independent of sanity, logic and judgment but are calculated for

comparative analysisan important purpose#

$he capability to regularly prepare an %C along with the calculation of the Best

Case, +orst Case, and 4ost 5ikely %Cs is becoming an industry best practice# t

least annually, a complete bottomsup %C, called the Comprehensive %C, is

re&uired on those projects subject to the "12 :D:#:EFG;;: %arned 'alue

4anagement 6ystem re&uirements# comprehensive %C is also often prepared at

the start of a major project phase@ such as the start of production or construction#

Conse&uently, it can re?ect the reduced uncertainty resulting from a design release

and0or a released bill of material, which enables the project manager to answer

these &uestions