You might know that Estimate To Complete (ETC) is an important metric for Earned Value Management (EVM) calculations. ETC formulas are used to compute the cost of remaining project work.
Even though ETC is a very important concept, it is explained sketchily in Project Management (PM) books and literature. Many PM books and PMP Study Guides just list EVM formulas without really explaining them.
You will find a complete discourse on ETC in this post. It includes ETC definition, detailed explanation, example, and calculation formulas. You will also understand the difference between Estimate to Complete and Estimate At Completion (EAC).
There are many calculation based mathematical questions in the PMP exam. Some of these questions are based on EVM and Estimate To Complete Formulas. You will learn how to solve these questions.
What is Estimate To Complete?
Consider the following scenario.
Your Project Sponsor comes to you and asks – How much money is needed to complete the remaining project work?
It is also possible that, instead of money, Sponsor might ask how much effort is required to complete the remaining work.
I am sure you would have faced similar questions. How do you generally respond to such questions?
Most Project Managers try to avoid answering these kind of questions. They do not want to say anything even if the project is progressing smoothly.
Do you know why this happens?
Projects go through a lot of uncertainty and turbulence. It is very difficult to forecast what will happen in future. Most people do not want to commit anything lest something bad happens.
But, you should always follow good project management practices. You should periodically evaluate and analyze the health of project. Your Sponsor just wants to know a cost estimate to complete the remaining project work.
Estimate to Complete is nothing but a cost forecast for completing the remaining project work.
Estimate to Complete is the expected cost to finish all the remaining project work.
You can also refer to Max Wideman Glossary to read some other standard definitions of ETC.
For other EVM definitions, you can refer to my previous article that provides simple definitions.
ETC is an estimated cost forecast. It changes as the project progresses. It should be revised periodically based on the past project performance.
Note: It is true that all projects have some inherent risks. But still projects should be managed scientifically with proper estimates and forecasts. As the project progresses, one can always revise the estimates. EVM helps us measuring project’s current performance and forecast future performance. In EVM, Estimate To Complete, Estimate At Completion, and To Complete Performance Index are used for project forecasting.
Estimate To Complete Example And Calculations
Let us look at an ETC example and understand the concept. Refer to the project that we had considered in Basics of Earned Value Analysis.
The project was about building 80 tables. The cost of building 1 table was estimated as 1000 units of money and the total budget was 80000 units of money.
Refer to Table 4 of Basics of Earned Value Analysis. As per the data, the project team:
- has built 35 tables out of a total of 80 tables (work completed).
- has spent 36000 units of money to build 35 tables (actual expenditure).
- needs to build another 45 tables to complete the project (remaining project work).
So, in EVM terms:
- total work was 80 tables.
- completed work is 35 tables.
- remaining work is 45 tables.
Going by the above definition, ETC would be expected cost of building remaining 45 tables.
To find the expected cost, let us look at the following scenarios.
Scenario I – The project team can perform a small mathematical calculation to compute ETC. If 35 tables were built using 36000 units of money then 45 tables can be built in (45*36000/35) or 46286 units of money.
Scenario II – The project team believes that there was an aberration in the past and it is unlikely to happen in future. Moving forward the 45 tables can be built as per the original estimate (45*1000) or 45000 units of money.
Scenario III – The project team believes that they have better their knowledge and skills of building tables. Moving forward the efficiency of building tables will improve. Each table can be built in 800 units of money (instead of 1000 units). 45 tables can be built in (45*800) or 36000 units of money.
Scenario IV – The Sponsor has revised the budget to 82000 units of money (original budget was 80000 units of money) for building the 80 tables. The project team has to complete the remaining work (45 tables) within remaining money (82000-36000) or 46000 units of money.
The above scenarios can be used to device ETC formulas. Let us do a scientific analysis and evolve some computation formulas.
ETC Formulas For Calculations
Generic ETC Equation
We have to determine the expected cost of remaining work. So, we can write ETC equation as
ETC = (monetary value of remaining work)/(future projected cost efficiency)
monetary value of remaining work = monetary value of total work – monetary value of completed work
Refer to Basics of Earned Value Analysis or Earned Value Management System Explained in Easy Language. In EVM, monetary values of total work and completed work are represented as Budget At Completion (BAC) and Earned Value (EV) respectively.
We can rewrite numerator as:
monetary value of remaining work = BAC – EV
In EVM, the current and future projected Cost Efficiencies are represented as Cost Performance Index (CPI) and CPIp receptively.
Final ETC Equation ⇒ ETC = (BAC – EV)/CPIp
Let us now use the above 4 scenarios to derive ETC formulas.
Estimate To Complete Formulas
Scenario I – Typical Performance
The project team determines, after analyzing project’s past performance, that the remaining work would be completed at project’s current cost efficiency.
By replacing CPIp with CPI in the ETC equation, we get
ETC Formula I ⇒ ETC = (BAC – EV) / CPI
In EVM parlance, we say that the project performance was typical. Typical means that past performance is indicative of the future performance.
Calculation for our example
ETC = (80000-35000)/(35000/36000)
ETC = 46286 units of money (this figure is same as our mathematical calculation)
It simply means that the project team will require 46286 units of money to build remaining 45 tables.
Scenario II – Atypical Performance
The project team determines, after analyzing project’s past performance, that the past performance has no bearing on the future performance. The team believes that the aberrations, that happened in the past, would not happen in future. They determine that remaining work would be completed at 100% cost efficiency (as per the original estimates).
By replacing CPIp with 100% (or 1) in the ETC equation, we get
ETC Formula II ⇒ ETC = (BAC – EV)
In EVM parlance, we say that the project past performance was atypical. Atypical means that past performance is not indicative of the future performance.
Calculation for our example
ETC = (80000-35000)
ETC = 45000 units of money
It simply means that the project team will will require 45000 units of money to build remaining 45 tables.
The project team, after analyzing project’s past performance, determines that the past performance has no bearing on future performance. The team believes that it can neither complete the work at current cost efficiency (CPI) nor at 100%. Their analysis suggests that future cost efficiency would be different from the current cost efficiency.
The future cost efficiency can be either more or less than the current CPI. This can happen due to number of reasons e.g. implementation of new technology, realized opportunities or threats, process changes etc. In such a scenario ETC equation will remain as it is.
ETC Formula III ⇒ ETC = (BAC – EV) / CPIp
Calculation for our example. Let us assume that project team determines that future cost efficiency would be 120% (or 1.2).
ETC = (80000 – 35000)/1.2
ETC = 37500 units of money
It simply means that the project team will need 37500 units of money to build remaining 45 tables.
The Sponsor has revised the budget to complete the project work. The project team now has to work with a new budget. Original budget is no longer valid.
ETC = (monetary value of total work) – (cost expenditure for completed work)
ETC = (revised budget) – (cost expenditure for completed work)
In EVM, the revised budget and expenditure are represented as Estimate At Completion (EAC) and Actual Cost (AC) receptively.
ETC Formula IV ⇒ ETC = (EAC – AC)
Calculation for our example
ETC = (82000-36000)
ETC = 46000 units of money
It simply means that the project team will will require 46000 units of money to build remaining 45 tables.
Scenario V – Bottom-up ETC
This scenarios is not discussed in the above example.
The project team, after analyzing project’s past performance, determines that their original estimates were not good. The team believes that the cost of remaining work should be re-estimated i.e. ETC should be determined afresh.
A fresh ETC can by found by estimating the cost of remaining (unfinished) work in the Work Breakdown Structure (WBS). This is called Bottom-up ETC.
You can re-estimate the cost of remaining work components (work packages and activities) and then total them Upwards in the WBS to determine a Bottom-up ETC.
There is no ETC formula for this scenario.
Estimate To Complete (ETC) vs Estimate At Completion (EAC) In Project Management
ETC and EAC are related terms. EAC is revised budget to complete the project work. EAC is generally derived after finding ETC.
Sometimes students are confused about the difference between ETC and EAC. I think the main reason for confusion is PM books. The books describe EAC and then derive ETC. But, for simpler understanding, it should be the other way round.
You can refer to my article on Estimate At Completion to find a detailed explanation of EAC concepts and formulas. You will also find finer points of difference between ETC and EAC.
Final Thoughts On ETC
ETC can be computed either by looking at project’s past performance or by re-evaluating the remaining project work. This estimate can be revised periodically as project progresses and moves towards the completion.
There are number of other formulas in EVM. You can read Earned Value Management Formulas for a quick snapshot of all of them. You need to understand the these to answer the PMP questions correctly. A mere memorization of the formulas is not useful. You may not be able to apply the correct formula in the exam question. It is better understand the concept and then apply the formula(s) as required.
Over To You
EVM is difficult topic. Do you still have any confusion about Estimate To Complete? You can write your question in the comments section below and I will respond to it.
PMP Exam Formulas
I have also compiled a PMP Formulas Cheat Sheet. It contains 45 formulas and 57 abbrviations. It will help you in your exam prep. You can freely download the PMP Formulas Sheet for your studies. It is the best and most comprehensive cheat sheet based on the PMBOK Guide 6th edition.
If you are looking beyond a cheat sheet, then I would suggest you to buy detailed PMP Exam Formula Study Guide by Cornelius Fichtner. It contains detailed explanations of all the formulas along with examples and 105 practice questions.
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