Forecasting When the Schedule Slip and Cost Overrun Point Different Directions
A systems integration project reports at month 12: BAC $8.0M, PV $4.8M, EV $4.0M, AC $4.4M. The schedule is slipping because a key subcontractor is late on interface definitions, but the team has been holding costs down by deferring non-critical testing. The PM's forecast is simply 'BAC plus the known $400K overrun' = $8.4M EAC. The customer's oversight office is asking for a defensible independent EAC and a variance analysis narrative. You have the following data: CPI = 0.91, SPI = 0.83, and the remaining work is heavily weighted to integration and test, which historically runs at a CPI of about 0.85 on this firm's programs.
1. Critique the PM's EAC and produce a more defensible estimate using at least two methods.
Read the worked answer
The PM's EAC of $8.4M assumes all remaining work will be performed at budget - i.e., it ignores the 0.91 cumulative CPI and the 0.83 SPI. That is an 'atypical variance' assumption, which is not supported here because the cost pressure (deferred testing) is structural.
Methods:
- CPI-based: EAC = BAC/CPI = 8.0/0.91 = $8.79M.
- Composite (CPI×SPI): EAC = AC + (BAC − EV)/(CPI×SPI) = 4.4 + 4.0/(0.91×0.83) = 4.4 + 5.30 = $9.70M.
- Bottom-up / weighted: remaining work is integration/test at ~0.85 CPI. Remaining budget = 8.0 − 4.0 = $4.0M; at 0.85 that costs 4.0/0.85 = $4.71M; EAC = 4.4 + 4.71 = $9.11M.
A defensible range is roughly $8.8M–$9.7M, with the bottom-up figure (~$9.1M) the most credible given the known test-phase performance. The PM's $8.4M should be rejected as unsupported.
2. Write the variance analysis narrative the oversight office needs, covering both cost and schedule.
Read the worked answer
Cost variance: CV = EV − AC = 4.0 − 4.4 = −$0.4M (overrun). CPI = 0.91. Cause: deferred testing has held near-term costs down, but integration labor is running above plan; the overrun is expected to grow as deferred test work is performed.
Schedule variance: SV = EV − PV = 4.0 − 4.8 = −$0.8M; SPI = 0.83. Cause: subcontractor late on interface definitions, which is also the root cause of integration rework risk.
Interaction: the schedule slip and cost overrun are linked, not independent - late interfaces push integration/test into a compressed window, which historically raises cost per unit of work. This is why a CPI-only forecast understates the EAC.
Forecast: independent EAC range $8.8M–$9.7M; recommend $9.1M as the working EAC. Corrective actions: escalate the subcontractor, re-sequence integration, and re-forecast at the next data date. Disclosure: PM's $8.4M is not supported by the data and should not be reported as the independent EAC.