Cost Forecasting (EAC/ETC) for Construction Projects
A practical guide for larger contractors and developers: understand EAC, ETC, VAC and BAC, project your final cost in time, and decide before the numbers run away.
The worst moment on a construction project is when the books are finally closed - and they show a loss nobody saw coming. By then it's too late. Cost forecasting (EAC/ETC) flips the logic: instead of looking back at what you've spent, you calculate forward to what the project will end up costing. In this guide we cover the problem, the difference between EAC, ETC, VAC and BAC, the simple metrics PV/EV/AC and CPI/SPI, the three main EAC formulas with a clearly labelled model example, a before/after case, the common mistakes, a 30-day rollout, and the honest limits. If you still need to get the basics in place, read how to digitalize your construction company first. Try Bidmio for free.
Why you must know the final cost before it's too late
On most projects, leadership only learns the real result when the final account lands on the desk. By then there are no levers left: variations are done, subcontractors invoiced, materials delivered. A cost forecast moves the decision forward in time. By combining earned value (what you've actually built) with actual cost, you can already see at 30 percent complete whether the project is heading for profit or loss - while you can still act. It isn't fortune-telling, it's disciplined arithmetic on data you already hold in project management.
Four reasons forecasting decides the bottom line
1Margins are thin
When margin often sits under 10 percent, even small deviations decide whether a project profits. A forecast catches the deviation while it's still small.
2Losses surface too late
Without a forecast you only see the overrun at final account. By then the room to manoeuvre is gone and the loss is a fact.
3Decisions need numbers
To stop a loss, negotiate a variation or move crew, you need a concrete final cost - not a gut feeling.
4Liquidity is at stake
Large projects tie up capital. Knowing early that the final cost is rising lets you arrange financing or adjust the payment plan in time.
EAC, ETC, VAC and BAC - the four terms explained
Earned Value Management sounds academic, but it rests on a handful of terms. Once you understand them you can read any project in minutes. The four most important are all about money: what was the budget, what's left to spend, where will we end up, and how big will the variance be.
In short: BAC is the plan, EAC is the forecast of where you'll land, ETC is what's left, and VAC tells you whether you end up over or under. These four numbers alone give a clearer picture than most monthly reports.
The four core terms
- BAC - Budget At Completion: The original, approved budget for the whole project. Your baseline and the yardstick for everything else.
- EAC - Estimate At Completion: The expected total final cost, based on how the project is actually performing right now.
- ETC - Estimate To Complete: What you expect to spend from today to the finish. ETC = EAC minus the cost already spent (AC).
- VAC - Variance At Completion: The expected variance: VAC = BAC minus EAC. Positive = profit against budget, negative = overrun.
The metrics PV, EV, AC and CPI/SPI - made simple
Behind the forecasts sit six numbers. They sound technical, but each answers one plain question. Here they are with a fixed model example: a project with BAC of EUR 5,000,000, planned over 10 months, measured at month 4.
1PV - Planned Value
How much work should be done by now according to plan, measured in budget money. In project management PV comes from your schedule and baseline.
π Model example: at month 4, 40 percent should be done = EUR 2,000,000.
2EV - Earned Value
How much work is actually done, measured in budget money. If 35 percent is complete, EV is 35 percent of BAC - regardless of what it cost.
π Model example: 35 percent actually complete = EUR 1,750,000.
3AC - Actual Cost
What the work has actually cost to date - labour, materials and subcontractors. AC is gathered from company expenses and invoices.
π Model example: actually spent = EUR 2,100,000.
4CPI - Cost Performance Index
Are you getting value for money? CPI = EV / AC. Above 1.0 is efficient; below 1.0 means every euro buys less value than planned.
π Model example: CPI = 1,750,000 / 2,100,000 = 0.83 (you're burning 17 percent too much).
5SPI - Schedule Performance Index
Are you on schedule? SPI = EV / PV. Above 1.0 is ahead of plan; below 1.0 is behind. Schedule slippage usually costs extra money too.
π Model example: SPI = 1,750,000 / 2,000,000 = 0.88 (12 percent behind).
6CV and SV - the variances in money
CV = EV minus AC (cost variance), SV = EV minus PV (schedule variance). They turn the abstract indices into concrete money you can explain to the client.
π Model example: CV = -EUR 350,000, SV = -EUR 250,000 - both in the red.
The three EAC formulas with a model example
There isn't one correct EAC formula - there are three, and each fits a particular situation. We use the same model example as above: BAC = EUR 5,000,000, EV = EUR 1,750,000, AC = EUR 2,100,000, CPI = 0.83 and SPI = 0.88. WARNING: these figures are a clearly labelled MODEL EXAMPLE, not a guarantee. Use them to understand the method, not as the answer for your own project.
Three formulas, three assumptions
1Formula 1: EAC = BAC / CPI
Assumes the rest of the project runs as (in)efficiently as so far. 5,000,000 / 0.83 = EUR 6,024,000. The fastest and most common.
2Formula 2: EAC = AC + (BAC - EV)
Assumes the deviation was a one-off and the rest costs as budgeted. 2,100,000 + (5,000,000 - 1,750,000) = EUR 5,350,000. The most optimistic.
3Formula 3: EAC = AC + (BAC - EV) / (CPI x SPI)
Assumes both cost and schedule affect the rest. 2,100,000 + (3,250,000 / 0.73) = EUR 6,552,000. The most cautious when a project is both costly and late.
4VAC: what does it mean?
With formula 1, VAC = 5,000,000 - 6,024,000 = -EUR 1,024,000. The project is heading for a million-euro overrun. Time to act now.
Model case: a mid-size contractor before and after
This is an illustrative model example of a contractor with around 40 staff and 6-8 projects running at once. The numbers are indicative and show where money typically leaks - and what disciplined forecasting changes.
Model firm: 40 staff, 6-8 concurrent contracts
Without forecasting
Final cost: known only at final account, often 2-3 months too late.
Variations: forgotten or never invoiced on several projects.
Overruns: 2 of 8 projects ended in loss with no warning.
Reporting: manual spreadsheets, updated once a month.
With EAC/ETC in Bidmio
Final cost: EAC known from 30 percent complete on every project.
Variations: caught and invoiced on the go via deviation alerts.
Overruns: spotted early, crew reallocated, losses halved.
Reporting: live numbers, refreshed weekly with no extra work.
Model result: by knowing EAC from around 30 percent complete, the firm could step in on two loss-making projects while there was still room to manoeuvre. The combined effect - fewer overruns and better invoicing of variations - amounts in the model to several hundred thousand euros a year on the bottom line.
5 common mistakes in cost forecasting
A forecast is only as good as the discipline behind it. Here are the mistakes that make forecasts lie - and how to avoid them.
1No baseline (BAC)
β οΈ Causes:
- β’The project starts without an approved, locked budget.
- β’The budget changes on the fly with no version or sign-off.
β Solutions:
- Lock a BAC before kickoff and store it as the baseline.
- Keep changes separate as approved budget revisions, not silent edits.
2Updating too rarely
β οΈ Causes:
- β’Numbers are tallied only monthly or at milestones.
- β’Percent complete is guessed rather than measured.
β Solutions:
- Update EV and AC at least weekly on large projects.
- Measure percent complete on concrete deliverables, not feel.
3Ignoring committed and subcontractor costs
β οΈ Causes:
- β’Only paid invoices counted in AC.
- β’Ordered but un-invoiced materials left out.
β Solutions:
- Include committed costs from subcontractors and purchasing.
- Enter purchase orders so AC reflects the real obligation.
4Confusing spend with progress
β οΈ Causes:
- β’Assuming 50 percent spent = 50 percent done.
- β’Looking at AC alone without comparing to EV.
β Solutions:
- Always use EV (earned value), not AC, as the measure of progress.
- Cross-check CPI against percent complete for the real status.
5Trusting a single formula blindly
β οΈ Causes:
- β’Using only EAC = BAC / CPI without judging the situation.
- β’Forgetting that schedule slippage also drives cost up.
β Solutions:
- Choose the formula to fit the project's situation, and show a range.
- Have an experienced project manager validate the forecast monthly.
How to get started with EAC/ETC in 30 days
You don't need an Earned Value certification to begin. This plan takes you from zero to a living forecast in a month.
1.Week 1: Establish the baseline
Goal: a locked budget (BAC) and a schedule to measure against.
- Lock the BAC for one pilot project and store it as baseline.
- Spread the budget across phases so you can derive PV over time.
- Define how percent complete is measured on each deliverable.
π One pilot project with an approved BAC and a PV curve.
π‘ Start with a live project - you learn fastest on real numbers.
2.Weeks 2-3: Measure EV and AC
Goal: get the actual numbers in and compute the first indices.
- Record AC from labour, materials and subcontractors continuously.
- Measure EV on actual percent complete each week.
- Compute CPI and SPI and compare to the plan.
π First CPI/SPI and an EAC under all three formulas.
π‘ Include committed costs from day one or you'll understate AC.
3.Week 4: Forecast and decide
Goal: turn numbers into action and spread the method.
- Pick the EAC formula that fits the situation and compute VAC.
- Hold a short forecast meeting and decide concrete actions.
- Roll the template out to the next two projects.
π A decided action plan and a rollout plan.
π‘ A weekly 15-minute forecast review beats an hour-long monthly meeting.
What a cost forecast can't do
Honesty matters. An EAC is arithmetic on known data - not a crystal ball. Here are the limits you should know before you lean too heavily on a single number.
Four honest limits
1Only as good as your data
Wrong percent complete or missing costs produce a wrong forecast. Garbage in, garbage out applies here too.
2It won't catch sudden shocks
A subcontractor going bankrupt or a ground condition surprise can't be predicted by any formula. The forecast extrapolates the past.
3The human decides
EAC gives a signal, not a decision. An experienced project manager must interpret the number in context.
4Earlier = more uncertain
At 10 percent complete the forecast swings a lot. It becomes reliable from around 20-30 percent onwards.
How Bidmio does it
In Bidmio, cost forecasting isn't a separate spreadsheet you maintain by hand. The numbers emerge from the work you already record - and you always keep control of the decisions.
| Module | Description | Benefit |
|---|---|---|
| Project management | Baseline, percent complete and PV/EV are gathered in project management, so EAC updates continuously. | Live final cost without manual spreadsheets. |
| Company expenses | AC is gathered automatically from labour, materials and outlays in company expenses. | Actual cost always current and tied to the project. |
| Price quotes | The approved price quote becomes the project's BAC, so the baseline is fixed from the start. | Budget and forecast rest on the same numbers. |
| Subcontractors | Committed costs and contracts from subcontractors feed into AC and ETC. | No hidden obligations in the forecast. |
| Invoicing module | Variations and progress invoices via the invoicing module are linked to progress. | Fewer forgotten variations, better margin. |
| Deviation alerts | When CPI drops below a threshold, the project manager gets a warning - early enough to act. | Losses spotted while there's still room to manoeuvre. |
Frequently Asked Questions
Know the final cost while you can still act
Cost forecasting (EAC/ETC) moves the decision forward from the final account to while the project is running. With BAC as your baseline, EV and AC as the measurement and the three EAC formulas as tools, you can see the overrun while it's still small. In Bidmio the numbers emerge from work you already record - from project management through company expenses to invoicing. Start with a pilot project and roll it out. Try it on your own project.
Try Bidmio for free and know the final cost before it's too late.
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