Oliver 75 - 49th Question

[jyotimayank]

Quest 49.
You are assigned as the project manager to a project which had a one-time cost variance in the past caused by unexpected rework which has meanwhile been finished. You perform earned value analysis and get the following results:

EV: 250,000; PV: 200,000; AC 275,000
BAC is 500,000.
What is right?

A. EAC = 550,000
B. EAC = 525,000
C. EAC = 500,000
D. EAC = 425,000

[Ananyapmp]

EV: 250,000; PV: 200,000; AC 275,000
BAC is 500,000.

EAC = AC + (BAC – EV)
= 275k +(500K-250k)
= 275k+250k


Answer is B. EAC = 525,000

[jyotimayank]

Yes the correct answer is B.
As per PMBOK® Guide Fifth Edition

When calculating EAC values, the cumulative CPI and SPI values are typically used. While EVM data quickly provide many statistical EACs, only three of the more common methods :

1. EAC forecast for ETC work performed at the budgeted rate: This EAC method accepts the actual project performance to date (whether favorable or unfavorable) as represented by the actual costs, and predicts that all future ETC work will be accomplished at the budgeted rate. When actual performance is unfavorable, the assumption that future performance will improve should be accepted only when supported by project risk analysis.
EAC = AC + (BAC – EV)

2. EAC forecast for ETC work performed at the present CPI: This method assumes what the project has experienced to date can be expected to continue in the future. The ETC work is assumed to be performed at the same cumulative cost performance index (CPI) as that incurred by the project to date.
EAC = BAC / CPI

3. EAC forecast for ETC work considering both SPI and CPI factors: Variations of this method weight the CPI and SPI at different values (some ratio) according to the project manager’s judgment. Equation: EAC = AC + [(BAC – EV) / (CPI × SPI)]

Using first formula
EAC = AC + (BAC – EV)
= 275000 +(500,000-250,000)
= 275,000+250,000
=525,000


Refer to Page 220-221 0f PMBOK® Guide 5th Edition

For more insight of this topic refer to the following blog & video
Blog:What is EAC & ETC and What are its Variants?

http://www.izenbridge.com/blog/what-is- ... -variants/

Video: PMP FAQs : Estimate At Completion (EAC)
http://www.izenbridge.com/videogallery/ ... zenbridge/

[rjv007]

Please, can you explain why formula 1 was chosen instead of formula 2?
I can see that the question highlights that there was a one-time cost variance, but an explanation as to the significance will be most helpful.
Thank you.

[jyotimayank]

Formula 1 is choosen because the question says "cost variance in the past caused by unexpected rework " and formula 2 is choosen assuming what the project has experienced to date can be expected to continue in the future

2. EAC forecast for ETC work performed at the present CPI: This method assumes what the project has experienced to date can be expected to continue in the future.