TOPIC: ETC Formula: Atypical case?

I normally see the ETC formula to be

ETC = BAC - AC

however on your formual sheet there is also ETC = BAC - EV (atypical). On one of your simulated exams the BAC- EV was required.

Question:
1) Can you clarify when we use BAC - EV vs BAC - AC?
2) Can you give an example question that would we would use BAC - AC? Or if possible, make a slight change in the same question, so we would know when we would use BAC - EV?

Thanks.

Dear Edward:

The formula you have mentioned ETC = BAC – AC is not correct. Can you please share the reference where you saw this one?

Estimate at Completion is equal to actual costs to date plus our estimate to complete the remaining work. This means:

EAC = AC + ETC

This implies that:

ETC = EAC – AC

You can only use this formula when you already know your EAC and AC. Practically speaking you first calculate your ETC, and based on that you calculate your EAC. So in real life, you will not use this formula expect for some tricky PMP exam question.

Now the question is, if we don’t know the ETC, how do we calculate this? If you think that the future cost performance will conform to the original plan, use the following formula:

ETC = BAC – EV

However, if you think that the future cost performance will be as good or as bad as the current cost performance, use the following formula:

ETC = (BAC – EV)/CPI

Please let me know if this resolves your confusion.

Regards,

Khurram

I got the formula from the material, I bought from Cornelius' company (OSP). See exact reference to below. Also I believe on a OSP simulated test, ETC = BAC-AC was referenced.

PMP® Formula Pocket Guide
Copyright © 2009-2011 by OSP International LLC. All rights reserved. Version 2.2 - Use with PMBOK® Guide 4th Edition
Earned Value

ETC = EAC - AC
ETC ‘atypical’ = BAC - EV
ETC ‘typical’ = (BAC - EV) / CPI
ETC ‘flawed’ = new estimate

I hope the reference help? Can you help explain when to use EAC-AC vs BAC - EV on the test now?

Dear Edward:

Please see my comments inline:

"I got the formula from the material, I bought from Cornelius' company (OSP). See exact reference to below. Also I believe on a OSP simulated test, ETC = BAC-AC was referenced."

Are you sure the formula for ETC mentioned is BAC - AC. It should be EAC - AC not BAC - AC. Can you please confirm?

PMP® Formula Pocket Guide
Copyright © 2009-2011 by OSP International LLC. All rights reserved. Version 2.2 - Use with PMBOK® Guide 4th Edition
Earned Value

ETC = EAC - AC This is correct
ETC ‘atypical’ = BAC - EV This is correct
ETC ‘typical’ = (BAC - EV) / CPI This is correct
ETC ‘flawed’ = new estimate This is correct

I hope the reference help? Can you help explain when to use EAC-AC vs BAC - EV on the test now?

EAC - AC and BAC - EV are both correct formulas for calculating ETC

Let's prove these two formulas are correct.

ETC = EAC - AC
ETC = (AC + BAC - EV) - AC .... using the formula EAC = AC + BAC - EV [PMBOK4 page: 184]
ETC = AC + BAC - EV - AC
ETC = BAC - EV

So both of these formulas are okay if your are calculating the ETC work to be performed at the budgeted rate. Which of the two should you use? That depends on which two inputs are available to you in the scenario.

Please let me know if this helps.

Warm regards,

Khurram

I guess I am still confused. So I will go back to my original intended questions.

Question:
1) Can you clarify when we use BAC - EV vs EAC - AC? ( Which of the two should you use? That depends on which two inputs are available to you in the scenario., I understand one uses EV vs AC, but why would one be "atypical"?)

2) Can you give an example question that would we would use EAC - AC? Or if possible, make a slight change in the same question, so we would know when we would use BAC - EV? Please give example questions / scenarios to help clarify.

Thank you.

Edward,

May I suggest our PMP Exam Formula Study Guide at www.pmformulas.com ?

I'm not trying "to make a sale" here, but if you are having trouble understanding the EV formulas, then the formula study guide is a great tool where you have all the formulas in one place.

1) Here is what the formula guide says about these formulas
ETC = EAC - AC: Inversion of the same formula from the EAC calculations. Note: This ETC formula is listed in only one (the “most famous”) PMP prep workbook. No others list it. We recommend using it, if no keywords are given.
ETC = BAC - EV : Assumption: use formula if current variances are thought to be atypical in the future.
ETC = (BAC - EV) / CPI :Assumption: use formula if current variances are thought to be typical in the future.

2) Here is a sample question from our formula study guide:
Question 10: PV = 100, EV = 105, BAC = 400, AC = 102, CV = 3, ETC = 300, EAC = 407. The ETC is given as 300. However, how much would the Estimate to Complete be if we assume that current variances are thought to be atypical?
and the answer is of course BAC-EV

Please can you explain to me how we drive this formula ETC = (BAC - EV) / CPI or just memorize it like that ? i read many explanation but still i am confused on this point.

Not sure of your question - "A typical" or "atypical" have different meanings and do you mean derive the formula or drive. I will assume you mean a typical case and derive. Hopefully this explains. If not please clarify your question.

Without a formula: ETC = what is our estimate to complete the work from here to the end. Let’s say that we have done very bad so far and spent twice as much as we have earned. (so Earned/Actual = CPI = 0.5). We determine after review that the reasons we did so bad will continue for the remainder of the project and so our ETC is based on the value of work to be earned at 50% efficiency.
The earned value or progress of the work to date is a calculated value based on installed or completed work. Let’s say we are 40% complete and so 60% remains to complete the work. Budget for the work is $10,000, so we have earned $4,000 (40%) and need to earn $6,000 to finish the work. It has cost us $8,000 to complete the first 40% of the work (at an efficiency of 50% or CPI of 0.5) and so the remaining $6,000 of earned value will cost us $12,000 at that same efficiency. Which is also the ETC or estimate to complete.

Putting these into the official formula ETC = (10,000 - 4000)/0.5 = 12,000 we get the same answer.

Edward I agree with your point, A lot of people here are not explaining to the point.

ETC = BAC - EV

let me exemplify how it was derived.
lets say you have 100 dollars budgeted work which we call it as BAC
BAC = $100
Lets say you spent 50 dollars which is the cost incurred, so the actual cost is now $50
Now lets say the earned value you got is only 20 dollars worth.
so now if lets say you have to figure out how much do you need to spend to get the rest of the work completed.
so lets first see how much money is with us
It is $50 dollars cash remaining because we already spent $50 dollars ($100 - $50). but how much worth of work is remaining. it is ($100 - $20). The worth of work remaining to complete is $80 dollars more.

so, if you take $100 dollars what is it? BAC
so, if you take $20 dollars what is it? EV
so, how much work is still remaining ? ($100 - $20 = $80) = BAC - EV = ETC.

ETC = BAC - AC is WRONG. it is NOT estimate to complete but it the remaining budget formula... Remaining BAC = BAC - AC

The correct formula is ETC = EAC - AC which is derived from EAC = ETC + AC

if not clear, send me an email

PMTycoon