BAC Project Management: Definition, Tips, and Examples
By Indeed Editorial Team
Published April 20, 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
To accurately estimate budgets for projects, companies often use cost estimation tools, such as the budget at completion (BAC). Project managers often use BAC methods to help generate project estimates for different aspects of the project. BAC methods can help determine time allocation and work progress, besides the cost of the project. In this article, we explore what BAC project management is, review its importance, and share several ways of using BAC.
What is BAC project management?
BAC project management helps to oversee and compare the actual costs of the project compared to their estimates. The BAC of a project is the total estimated cost of all the work that the project requires. This may include all the budget information for different parts of a project. For example, a project manager may also include the budget considering how long it takes to complete the project, the amount of work to complete, and the number of people working on the project.
The BAC of a project is often based on how much work there is, the different parts of the project, and it's usually calculated at the start by a project manager. The project manager then tracks the actual cost of the project and compares it to the estimated cost later.
Importance of BAC in project management
BAC project management's important because businesses can integrate it with other metrics from a project performance method called earned value management (EVM) to determine different progress reports of a project. For example, project managers can use BAC with planned value (PV) metrics to discern if the budget is on target for its scheduled time. BAC is important for helping companies create budgets for projects. This is helpful for companies to create cost appraisals before confirming a project, to ensure that the project is beneficial for the company. Along with planned value metrics, BAC can help with the following:
Estimate at completion (EAC)
Estimate at completion (EAC) estimates the total actual costs of a project while it's still in progress. Similar to BAC, it relates to the total cost of the project. EAC considers changing variables in the project, such as unplanned expenses, or inaccurate initial estimates. The BAC can help calculate EAC by using the following formulas:
EAC = BAC/CPI: This is the BAC divided by the cost performance index to calculate the EAC. This is helpful when the project stays on track and doesn't deviate too far from the original estimate.
EAC = AC + (BAC - EV): This is the actual cost plus the budget at completion minus the earned value of the project. This is useful when the project has some performance issues or issues that only occurred once, but the rest of the initial budget stays the same.
EAC = AC + (BAC - EV)/SPI x CPI: This is the actual cost plus the budget at completion minus the earned value divided by the schedule performance index times the cost performance index. This is of help when the cost and timeline vary from the initial budget and can help update budget projections.
To complete performance index (TCPI)
To complete performance index (TCPI) determines the amount of work left for a project. The TCPI helps project managers determine the future efficiency of a project, as it tells them how to use resources effectively to complete the project on budget and within the timeline. The BAC can help calculate the TCPI by using the following formula:
TCPI = (BAC - BCWP)/(EAC - ACWP)
You can calculate the TCPI by dividing the remaining budget, which you can find by subtracting the actual cost of work performed (ACWP) from the projected EAC, by the budgeted cost of work remaining. You can find this by subtracting the budgeted cost of work performed (BCWP) from the budget at completion (BAC). You can then compare it to the cost performance index (CPI) to determine if the projected EAC is reasonable.
To schedule performance indicator (TSPI)
To schedule performance indicator (TSPI) determines if the project is on track with the current timeline by measuring the value of work completed. You can determine the TSPI by following this formula:
TSPI = EV/BAC
You can calculate the TSPI by dividing the earned value by the budget at completion value. The TSPI is the ratio of earned value to budget at completion value.
Methods for determining BAC of a project
There are three methods you can use for determining the BAC of a project. If this is your first time determining the BAC, you might find it helpful to review every method to choose a preference. These all involve researching previous data to define the components of a project. The three methods are:
Parametric estimation is an accuracy-based technique that uses statistics to calculate certain metrics needed for a project to be successful. By applying the averages of other companies in the industry to verify project estimates, you can assess each individual aspect of the project. You can apply these averages by researching what other companies have previously averaged for each part and then combining all the averages together to determine the estimated budget at completion.
Using expert judgement can also help calculate exact estimates for the BAC of a project. Industry experts may have significant experience in determining the averages for certain elements of a project. You can apply this method by inquiring about and contacting different industry experts for their expertise in estimating different project components. You can use their averages and combine them to create an average estimated BAC.
Analogous estimation is when you use information from previous similar projects to help estimate averages as accurately as possible for project costs. You can apply this method by reviewing previous projects completed by the company, to see if there are any projects similar to the current one. By finding a similar previous project, you can analyze the cost estimates used for the previous project and apply them to the current project. If there is more than one project similar to the current project, you can add the estimates to find an averaged BAC for the current project.
Tips for determining the BAC of a project
If you're planning to use any of the methods previously stated, it may be helpful to review these tips for each BAC method:
Determine the limits of the project: It is important to determine the limits of the project before using methods such as analogous estimation because it can help you make more accurate estimations. This may help reduce the number of changes made to the estimations.
Use multiple experts to achieve higher accuracy for estimates: Using multiple experts to achieve higher accuracy for estimates can help find the average cost to improve the accuracy of your BAC estimates. This can help reduce the differences between the estimated and actual project costs.
Verify the accuracy of the data: Use parametric estimation to verify the accuracy of the data. Historical data can be helpful to confirm your estimates, and using a similar historical project can be a good reference for your current project.
Examples of BAC in businesses
See these helpful examples of BAC project management in practice:
Imagine a manufacturing company wants to build a warehouse facility for raw materials used for production. In this example, this company can use the parametric estimation method to determine the BAC. As the parametric estimation method is to research and define each aspect of the project, and add up all the costs, the company can research the electric, concrete flooring, and construction components. If the averages for each component are $3000 for electric work, $2000 for concrete flooring, and $20,000 for construction costs, it can find a BAC of $25,000 for the project.
Suppose a mortgage company wants to install internet capabilities and wiring throughout their entire facility. In this example, this company can use the expert judgement method to determine the BAC of the project. By researching multiple industry experts for internet installations and electrical wiring, it can come to a concluding average of the costs for each component.
Imagine a company wants to install production monitoring equipment on three of its production machines. In this example, this company can use the analogous estimation method to determine the BAC of the project by researching similar projects. By finding a relevant historical project, it may be able to find previous data that apply to estimate the BAC of the current project.
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