Budgeting in Project Management
- part #1: conclusions about the EAC
The EAC remains one of the most critical elements in business management as it helps a business forecast its resources to understand its barriers to attain set goals regarding the completion of projects. The EAC is now favorable to the business and predicts that the project can be completed within the allocated resources. Usually, companies will favor a CPI that is equivalent to or greater than one as it reflects the EAC equaling to BAC or being greater. In such circumstances, it becomes apparent that the project can be completed within the budgeted allocations and, in some cases, provide a surplus to the initially planned cost. The EAC at week 15 is calculated using a CPI of the value 1.0222, which is larger than one. As such, EAC at week 15 remains lower than the BAC at the same time. It shows that by the mid-level of completion, the actual expenditure remains lower than the anticipated cost of 1000. The accumulation of such surpluses from one week to another ensures that the project remains achievable even when the CPI goes below the value of 1, whereby the EAC becomes higher than BAC. At week 15, the EAC also reflects efficiency in operations throughout each week as the management sought better cost mitigation processes. In the previous couple of weeks, the CPI remained below one, meaning that the project costs exceeded the initial estimates. By week 15, the CPI surpasses the one mark taking the project back to profitability. Such levels of efficiency also reflect great decision-making models within the course of the project.
Part #2
The components provided in this case offer the necessary components to calculate for EAC. It gives a straight forward method since the BAC and CPI are provided. As such, the computation of the figures becomes effortless as well as deducing conclusions regarding the EAC on whether it is favorable or unfavorable with regards to the initial budget. Although the information provided allows for a straightforward application of the formula to calculate EAC (BCA/CPI), additional information would increase the ease of understanding the dynamics of the project while also allowing for other methods to apply in the calculation of EAC. For instance, the information provided lacks EV (Earned Value) and AC (Actual Value), all of which offer that reality of the project progress with regards to estimated and budgeted costs. The presence of the two allows for the calculation of CPI by dividing EV by AC. The lack of the two would make it problematic to calculate the CPI by week 15 in other cases. With correct values in EV and EC, it becomes easy to apply different formulas, mainly when the CPI is not provided. For instance, EAC can be calculated using the method, AC + (BAC – EV). The lack of information regarding EV and AC means that in this case, it becomes challenging to understand the progress of the project with regards to the value it has earned up to week 15. Nevertheless, the formula utilized in this case captures the correct cost of EAC regardless of the lack of AC and EV.