Project Forecasts: Cost Forecasting and Estimate at Completion (EAC)

Project Forecasts: Cost Forecasting and Estimate at Completion (EAC)

PMBOK v8 Definition

Cost forecasts are predictions used to determine if the project is within defined tolerance ranges for the budget and to identify any necessary change requests. Based on the project’s past performance, a calculated estimate at completion (EAC) value is documented and communicated to stakeholders. Cost forecasts are part of the Cost Management knowledge area and are an output of the Control Costs process.

Why It Matters for the Exam

This concept appears frequently in PMI exam questions testing your understanding of how past performance drives future projections. You will see it in situational questions where you must calculate or interpret EAC values, and in questions about when to initiate change requests based on budget tolerance breaches.

Key Points to Remember (for the exam)

  • Primary Output: Budget forecasts – predictions of future project expenditures based on current data
  • Key Calculation: Estimate at Completion (EAC) – a calculated value documented and communicated to stakeholders
  • Purpose: Determine if the project is within defined tolerance ranges for the budget
  • Trigger: Past performance data is used to generate cost forecasts
  • Action Required: When outside tolerance ranges, identify necessary change requests
  • Documentation: Change log – documentation of all changes made to the cost baseline
  • Related Outputs: Revised cost baseline and updated cost estimates

Typical PMI Exam Example

A project manager reviews monthly performance data and calculates an EAC of $525,000 against a budget of $500,000. The cost tolerance range is ±3%. The project manager documents the EAC, communicates it to stakeholders, and initiates a change request to address the budget variance.

PMI Exam Traps

  • Trap: Confusing cost forecasts with cost estimates

    • Reality: Cost estimates are quantitative assessments of likely costs for resources; cost forecasts are predictions of future expenditures based on past performance

  • Trap: Thinking EAC is optional or informal

    • Reality: EAC must be calculated, documented, and communicated to stakeholders

  • Trap: Ignoring tolerance ranges when interpreting forecasts

    • Reality: Cost forecasts are specifically used to determine if the project is within defined tolerance ranges

  • Trap: Assuming cost forecasts only look forward

    • Reality: They are "based on the project's past performance" – historical data is essential

Important PMI Connections

Related ConceptRelationship TypeExam Attention Point
Cost BaselineInput to / Revised byCost forecasts may trigger revisions to the cost baseline
Change RequestsOutput ofCost forecasts identify necessary change requests
Cost EstimatesComplementaryCost estimates feed into forecasts; both are updated
Change LogDocumentationAll changes to cost baseline are documented here

Quick Review Questions

  1. What is the primary purpose of cost forecasts in project management?
  2. What value must be calculated, documented, and communicated to stakeholders when performing cost forecasts?
  3. What triggers the identification of necessary change requests related to cost forecasts?
  4. What document records all changes made to the cost baseline?
  5. How do cost forecasts differ from cost estimates?

PMBOK v8 Reference

Section 7.3 - Control Costs (Outputs: Cost Forecasts, Budget Forecasts, Revised Cost Baseline, Updated Cost Estimates, Change Log)