Literature Review of project Cost Estimate at Completion forecasting methods

The estimation of the time and cost at completion represents one of the most important concepts in Project Management. Its importance increased a lot when the Navy’s A-12 project of the US Department of Defense (DoD) failed due to cost overruns and time delay. The identification of the best method for the calculation of the Estimate at Completion, thus became one of the major challenges in the evaluation of the acquisition costs in the purchasing process of military weapons. Also today, the determination of the performance factors and the estimate at completion of time and cost of a project is fundamental for the monitoring and control of the project progress and for the implementation of corrective actions, if some problems arise, to bring back the project on time and on budget. This thesis has the purpose of conducting a literature review of the major models and comparative studies of the EAC calculation methods. The first chapter of this thesis introduce the basic elements of Project Management, following the definitions of the Project Management Institute (PMI). Moreover, there is a description of the Earned Value Management, a management methodology aimed at measuring the progress of the project through its performance factors such as BCWS, BCWP and ACWP and forecasting new ones such a CEAC and TEAC. The second chapter describes the methodology used to conduct the research, identifying the basic steps for a correct Literature Review. The third chapter lists most of the studies conducted by authors regarding the different methods for the calculation of the cost estimate at completion during the years. The estimate at completion literature can be divided into sections based on the different approaches used. The first one considered is the index-based method, which include formulas based on the so-called Past Performance Factors. Then regression-based methods are described, which uses the regression analysis to model the nonlinear cumulative cost growth curves, to overcome the limitations of the linear models. Finally, other methodologies are considered, including also new methods for the EAC calculation which are finalized to fill eventual gaps in previous models. From these studies, as result, emerged that it does not exist a general model for the EAC’s forecast that can be used for all the projects; on the contrary the choice of the most accurate method will depend on the sector, type and characteristics of the project and on its percent at completion.