Earned Value Management

Budget at Completion (BAC)

Budget at Completion (BAC) is established early in the contract for every given level of the Work Breakdown Structure (WBS). They represent the total budget from which individual period Budgeted Cost of Work Scheduled (BCWS) values are derived and they are the benchmarks for computing overruns and underruns at the end of the contract. The budgets for all authorized work must be captured within the BAC. The BAC can also be referred to as the “Total Planned Value” of a project. There is no formula associated with BAC.

Definition: Budget at Completion (BAC) is the total of all budget values that have been previously established for all the work to be completed on a project.

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Budget at Completion (BAC) in Earned Value

A contractor reports the cumulative Actual Cost of Work Performed (ACWP) for the work packages that have been completed. The difference between the Budgeted Cost of Work Performed (BCWP) and the ACWP is the Cost Variance (CV). If the actual costs at a time now (i.e., ACWP) are higher than the earned value at a time now (i.e., BCWP), we know that the contractor is currently overrunning cost and that the contractor’s Estimate at Completion (EAC) may be higher than the BAC.

Calculating Budget at Completion (BAC)

Cost estimating is a valuable tool that is used to calculate BAC of any given project.  There are a number of cost estimating methods that can be used in estimating the costs of a future project that include:

  • Parametric: The parametric technique uses regression or other statistical methods to develop Cost Estimating Relationships (CERs).
  • Analogy: An analogy is a technique used to estimate a cost based on historical data for an analogous system or subsystem.
  • Engineering Estimate: With this technique (Also called Bottoms Up), the system being costed is broken down into lower-level components (such as parts or assemblies), each of which is costed separately for direct labor, direct material, and other costs.
  • Actual Costs: With this technique, actual cost experience or trends (from prototypes, engineering development models, and/or early production items) are used to project estimates of future costs for the same system.
  • Three-Point Estimate: This Program Analysis and Review Technique (PERT) style cost estimate has the project manager identifies three separate estimates.

Earned Value Management (EVM)

The Defense Acquisition University (DAU) list five main EVM variables:

AcqLinks and References:

Updated: 7/2/2021

Rank: G5.4

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