The main difference between the Estimated Cost at Completion (EAC) and the Actual Cost (AC) is that the former is a prediction of what the cost would be for accomplishing a certain objective (usually a project), while the latter is the costs that were incurred so far towards the completion of the objective. Both the EAC and the AC are used in earned value formulas.
- Estimated Cost at Completion (EAC) is what the Project Manager expects for completing a specified objective, be it a task, an activity, or a project.
- The Actual Cost (AC) is the cost incurred so far for completing a specified objective, that cost is known and is ready to be charged to the project budget. The payment for the actual cost is either already cleared or pending clearance.
- The Actual Cost morphs into the Actual Cost of Work Performed (ACWP) once the objective is accomplished. The ACWP represents the total costs incurred at the completion of the objective.
- Subtracting the Actual Cost from the Estimated Cost at Completion will return the Estimate To Complete (ETC = EAC – AC). If the ETC is positive (e.g. bigger than 0) then this means that the task/activity/project has not yet exhausted the budget (a good sign), a negative result (ETC < 0) means that the task/activity/project is now over-budget. This can be extremely bad news especially if the objective is far away from being reached.
A Simple Example
The Project Manager has predicted the cost of finishing a construction project to be $4,000,000. 10 months into the project, the costs (such as material, labor, etc…) incurred so far were $3,000,000. This means that:
- Estimated Cost at Completion (EAC) is $4,000,000.
- Actual Cost (AC) is $3,000,000.
- Estimated cost for completing this project = Estimate To Complete = ETC = EAC – AC = $4,000,000 – $3,000,000 = $1,000,000.
- Some Project Managers mistakenly refer to the Estimated Cost at Completion as simply Estimated Cost, which is wrong, as the term has to stress that it’s an estimate for completing an objective.
- Some think that the Actual Cost can only be known at the completion of the objective (confusing AC with ACWP), again, this is wrong. The actual cost changes every time a cost is incurred towards completing that objective.
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