Costs Determine Incurred
PMBOK v8 Definition
Actual cost (AC) is the realized cost incurred for the work performed on an activity during a specific time period. AC is the total cost incurred in accomplishing the work that the earned value (EV) measured. AC should correspond in definition to what was budgeted in the planned value (PV) and measured in the EV (e.g., direct hours only, direct costs only, or all costs including indirect costs). AC has no upper limit; whatever is spent to achieve the EV will be measured.
Why It Matters for the Exam
This concept appears frequently in earned value management (EVM) questions on the PMI exam, typically in calculation and interpretation scenarios. You will be asked to compute cost variances, performance indices, and forecasts using AC as a core input. Understanding the precise definition and measurement rules of AC is essential for answering both quantitative and conceptual questions correctly.
Key Points to Remember (for the exam)
- Definition: AC is the realized cost incurred for work performed during a specific time period
- Measurement Basis: AC corresponds to what was budgeted in PV and measured in EV (same cost elements)
- No Upper Limit: AC has no upper limit—whatever is spent to achieve EV is measured
- Time Period: AC is calculated for a specific time period, usually the data date
- Incremental vs. Cumulative: Project managers monitor EV both incrementally (current status) and cumulatively (long-term performance trends)
- Common Confusion: AC is NOT the same as planned value—AC is what was actually spent, PV is what was planned to be spent
- Key Relationship: AC is used to calculate Cost Performance Index (CPI = EV/AC) and Cost Variance (CV = EV - AC)
Typical PMI Exam Example
A project has a planned value of $100,000 for work scheduled by month 6. The actual cost incurred to date is $120,000, and the earned value is $90,000. What is the cost performance index (CPI)? Answer: CPI = EV/AC = $90,000/$120,000 = 0.75 (over budget).
PMI Exam Traps
- Trap: Confusing AC with planned value (PV)
- Reality: AC is what was actually spent; PV is what was planned to be spent for scheduled work
- Trap: Assuming AC has a maximum limit equal to the budget
- Reality: AC has no upper limit; actual costs can exceed the budget without constraint
- Trap: Mixing up AC with earned value (EV)
- Reality: EV is the value of work performed (measured in budget terms); AC is the actual cost incurred to perform that work
- Trap: Forgetting that AC must match the cost definition used for PV and EV
- Reality: If PV includes only direct costs, AC must also include only direct costs
Important PMI Connections
| Related Concept | Relationship Type | Exam Attention Point |
|---|---|---|
| Earned Value (EV) | Direct comparison | AC is the cost incurred to achieve EV; used to calculate CV and CPI |
| Planned Value (PV) | Same cost definition | AC and PV must use identical cost elements (direct, indirect, etc.) |
| Budget at Completion (BAC) | Baseline reference | AC is compared to BAC to determine remaining budget; EAC forecasts total cost |
| Estimate at Completion (EAC) | Forecast using AC | EAC = AC + ETC; AC is the starting point for cost forecasting |
Quick Review Questions
- What is the definition of actual cost (AC) according to PMBOK v8?
- Does AC have an upper limit? Why or why not?
- How is AC used to calculate the cost performance index (CPI)?
- What must be consistent between AC, PV, and EV in terms of cost definition?
- What is the difference between incremental and cumulative monitoring of AC?
PMBOK v8 Reference
Section 4.5.2 - Earned Value Management (EVM) – Actual Cost (AC) Definition and Application