A project may be approved with a budget of AED 1 million, but that does not mean AED 1 million will remain the most realistic estimate of its final cost throughout delivery. Supplier prices can change, productivity can differ from assumptions, risks can materialise, and the remaining scope often becomes clearer as work progresses.
Cost forecasting answers a different question from budgeting: given what has happened so far and what we now know about the remaining work, what is the project currently expected to cost when it finishes?
The basic flow is actual cost → remaining work → ETC → EAC → compare with budget → management decision.
Cost forecasting in project management is the process of estimating the future cost of the remaining work and the project's likely total cost at completion using actual performance and the latest available project information.
A useful forecast should answer four questions:
The Project Management Institute's current Earned Value Management guidance uses project performance information not only to understand where a project currently stands, but also to forecast where it may finish.
The important principle is that a forecast is today's best-supported view of the future. It should not rewrite what the project was originally authorised to cost simply because expectations have changed.
These concepts are related but serve different management purposes.
The relationship can be summarised as:
Estimate informs the plan → Budget authorises the plan → Forecast updates the expected outcome → Cost control responds to the difference
HAL's Budgeting in Accounting guide similarly distinguishes an approved budget from a forecast that changes as actual results and expectations develop.
A project forecast should therefore be allowed to move when reality changes without automatically erasing the original performance benchmark.
Several terms appear repeatedly in project cost forecasting.
The fundamental forecasting relationship is:
EAC = AC + ETC
AACE International's Recommended Practice 80R-13: Estimate at Completion describes EAC using this relationship between cost incurred to date and the current estimate of the cost required to complete the remaining work.
Variance at Completion can then be calculated as:
VAC = BAC − EAC
A positive VAC indicates a forecast below the approved budget, while a negative VAC indicates a forecast overrun.
The key distinction is:
BAC represents the authorised plan. EAC represents the current expected outcome.
Historical expenditure alone is not a forecast. A useful forecast also needs a credible view of the remaining work.
Depending on the project, inputs may include:
The cost and schedule views also need to agree. If the project programme now extends three months beyond the original completion date, a forecast that still assumes the original duration may omit additional resources, rentals, supervision or other time-related costs.
AACE's EAC guidance similarly emphasises developing the forecast from current project conditions and aligning it with the expected schedule for the remaining work.
Define the date through which project information is considered current.
Actual costs, progress, commitments and schedule status should refer to a consistent reporting point. Mixing actual expenditure from one period with progress from another weakens the forecast before any formula is applied.
Confirm that AC reasonably represents costs incurred through the status date.
Review delayed invoices, incorrectly coded transactions, missing labour records, duplicate costs and other timing issues that could distort the starting point.
If the actual-cost figure is wrong, adding a sophisticated ETC will not produce a reliable EAC.
Forecast what is genuinely left to perform rather than simply carrying forward the original plan.
Approved changes, completed work, omitted activities and updated design information may all affect the remaining scope.
This is particularly important later in a project, when current knowledge can be materially better than the information available when the original budget was approved.
Remaining cost depends on how the remaining work will be delivered.
Review expected duration, labour requirements, equipment, subcontractors, supplier timing and productivity. A schedule delay or changed execution strategy may materially affect ETC even if the physical scope remains unchanged.
Estimate how much additional money will be required to complete the remaining authorised work.
This may involve a detailed bottom-up review, an Earned Value-based forecast, trend analysis or scenario modelling depending on project conditions.
Once ETC is established:
EAC = AC + ETC
Then compare the result with the approved budget:
VAC = BAC − EAC
This turns the forecast into information management can act on.
A forecast should be questioned before it is accepted.
Ask whether commitments are included, whether resource rates are current, whether schedule assumptions are credible and whether unresolved risks have been considered.
The people responsible for delivering the remaining work should normally contribute to the assumptions rather than leaving the forecast entirely to finance or project controls.
There is no single method that is always correct.
A bottom-up forecast re-estimates the remaining work packages using current information.
The relationship remains:
EAC = AC + Bottom-up ETC
This method is especially useful when original assumptions have changed materially. Examples include revised scope, updated supplier prices, changed productivity or a new delivery strategy.
Because the remaining work is reassessed directly, bottom-up forecasting can provide a more credible picture than extrapolating historical performance when project conditions have changed.
If past cost problems are considered exceptional and the remaining work is expected to perform according to the original plan, an EVM-based relationship can be used:
EAC = AC + (BAC − EV)
This assumes the remaining work will be delivered at its original budgeted efficiency.
That assumption should be defensible. It would be weak to use this method merely because it produces a more favourable final cost.
Where current cost efficiency is expected to continue, a Cost Performance Index-based forecast can provide another view.
CPI = EV ÷ AC
Then:
EAC = BAC ÷ CPI
PMI's 2026 Earned Value Management guidance uses this approach to illustrate forecasting when current cost performance is assumed to continue.
The method is useful as a performance-based check, but it assumes that historical efficiency is relevant to the remaining work.
Project teams can examine cost patterns over several reporting periods rather than relying on one month.
Useful trends might include:
A single abnormal reporting period should not necessarily determine the final project forecast.
Projects with significant uncertainty may benefit from more than one number.
Management can consider expected, favourable and adverse cases based on different assumptions about risks, prices, productivity or schedule outcomes.
A range can be more decision-useful than presenting a highly precise EAC when the underlying project information remains uncertain.
The method should match the conditions expected during the remaining work.
AACE's EAC guidance recognises that forecasting techniques can vary according to project size, stage, risk and complexity.
The most sophisticated-looking formula is therefore not automatically the best forecast. The most useful approach is the one whose assumptions most closely represent how the remaining work is actually expected to be delivered.
Consider a project with:
BAC = AED 1,000,000
At the current status date:
The current CPI is:
CPI = 400,000 ÷ 450,000 = 0.89
Using the CPI-based method:
EAC = BAC ÷ CPI
AED 1,000,000 ÷ 0.89 ≈ AED 1,124,000
The expected variance is:
VAC = AED 1,000,000 − AED 1,124,000 = −AED 124,000
Now suppose the project team reviews the remaining work packages, supplier prices, resources and programme and develops:
ETC = AED 600,000
Then:
EAC = AED 450,000 + AED 600,000 = AED 1,050,000
The resulting VAC is:
AED 1,000,000 − AED 1,050,000 = −AED 50,000
Neither forecast is automatically wrong. They represent different assumptions.
Management should determine whether the causes behind the project's earlier cost inefficiency are likely to continue or whether the detailed ETC better reflects the remaining work.
That assessment is the real forecasting exercise.
Suppose the approved BAC is AED 1 million while the latest EAC is AED 1.12 million.
The project should not automatically increase its baseline to AED 1.12 million merely because the forecast changed.
The AED 120,000 difference provides valuable information about expected performance.
The baseline may need revision when an authorised change alters the project's approved scope, funding or cost plan. The forecast, however, should change whenever credible information changes expectations about the project's final financial outcome.
A useful rule is:
Forecasts should move with reality. Baselines should move with authorisation.
Otherwise, continuously resetting the baseline to equal the latest forecast makes it difficult to understand whether project performance actually improved.
There is no universal forecasting interval.
Many organisations align forecasts with a monthly or periodic reporting cycle, while faster or higher-risk projects may require more frequent reviews.
A reforecast may also be triggered by events such as:
The better principle is:
Update the forecast often enough that new information can still influence a management decision.
Forecasting only because a report is due can turn the process into an administrative exercise instead of a control tool.
Project forecasts should reflect uncertainty rather than hide it.
Remaining cost can be affected by pending claims, unresolved scope, supplier pricing, schedule extensions, market escalation, productivity, resource availability or other project risks.
If those uncertainties are material, a single EAC can imply more confidence than the project actually has.
Teams may therefore use scenario forecasts, explicit forecast assumptions or ranges alongside the central EAC.
The objective is not to make the forecast pessimistic. It is to make clear which future conditions must occur for the number to remain credible.
A project should not only produce forecasts; it should also learn whether its forecasting process is reliable.
Retain previous forecasts and compare them with later results.
For example:
Month 3 forecast → later outcome
Month 6 forecast → later outcome
Month 9 forecast → final cost
Patterns can reveal systematic weaknesses.
If forecasts consistently rise only near project completion, teams may be ignoring risks or remaining costs for too long. If one work package is repeatedly understated, its estimating assumptions may need review.
A forecasting process should therefore be measured as well as performed. Regular updates create little value if each forecast continues to repeat the same bias.
A common mistake is treating the approved budget as the forecast even after project conditions have changed.
Other problems include:
The most precise-looking forecast is not necessarily the most credible one.
✓ Forecast status date has been defined
✓ Actual costs have been reconciled
✓ Commitments have been reviewed
✓ Remaining scope has been confirmed
✓ Current schedule has been reviewed
✓ Resource assumptions have been updated
✓ Supplier and labour rates are current
✓ Approved changes are included
✓ Pending changes remain separately visible
✓ Material project risks have been reviewed
✓ ETC reflects current remaining work
✓ EAC has been calculated
✓ VAC is reported against the approved budget
✓ Alternative forecast methods have been checked where useful
✓ Forecast assumptions are documented
✓ Responsible work owners have reviewed their remaining costs
✓ Movement from the previous forecast can be explained
Cost forecasting becomes more difficult when project planning, employee time, actual project activity and financial information sit in unrelated systems.
HAL Project Management currently supports project organisation, scheduling, resource planning and project oversight. Its documented forecasting capability allows businesses to use insights from past projects when planning upcoming work and compare forecasts with real-time information from actual timesheets.
That type of connected operational information can reduce the effort required to reconcile planned work with actual activity before management develops or reviews a cost forecast.
Software still does not decide automatically which EAC method is appropriate or whether the assumptions behind ETC are credible. HAL should not be treated as automatically generating PMI-compliant Earned Value forecasts, bottom-up ETC calculations or autonomous cost-overrun predictions unless those specific capabilities are explicitly documented.
Cost forecasting gives project managers a current financial destination rather than relying indefinitely on the assumptions made when the project was approved.
The core process is:
Actual cost → Remaining work → ETC → EAC → Compare with BAC → Management decision
A strong forecast does not try to prove that the original budget was correct. It uses the best current information to give management a credible view of where the project is heading.
HAL Project Management can help organisations connect project planning, resource information, timesheets and actual project activity within a single operating environment. To explore HAL's project-management capabilities, book a demo.
Cost forecasting estimates the expected cost of the remaining project work and the likely total project cost using actual expenditure, current progress and the latest project assumptions.
Estimate at Completion is the project's current forecast of total cost when all authorised work has been completed.
Estimate to Complete is the amount currently expected to be required to finish the remaining authorised project work.
The fundamental relationship is:
EAC = AC + ETC
Other Earned Value-based formulas can also be used when their underlying assumptions are appropriate.
BAC is the approved Budget at Completion. EAC is the current forecast of what the project is actually expected to cost at completion.
Variance at Completion measures the expected difference between budget and forecast final cost:
VAC = BAC − EAC
A negative result indicates a forecast overrun.
Forecast frequency should reflect project pace, risk and reporting needs. Forecasts should also be updated when material changes in scope, schedule, pricing, productivity or risk alter the expected cost of the remaining work.
.jpg)
.jpg)