In project management, particularly within the context often associated with the Project Management Professional (PMP) certification framework, VAC stands for Variance at Completion. It is a critical metric used to forecast the anticipated cost performance of a project upon its scheduled completion.
Understanding the VAC Formula
The Variance at Completion (VAC) is calculated using a straightforward formula that compares the total planned cost for the project against the most current prediction of its total cost.
According to the provided reference:
- The VAC formula is a simple subtraction formula resulting in a monetary value.
- It shows the total cost planned (budget at Completion or BAC) minus the total cost now predicted (Estimate at Completion or EAC).
Therefore, the formula is:
VAC = BAC - EAC
Where:
- BAC (Budget at Completion): This is the total planned budget for the entire project at its conclusion. It represents what the project was originally expected to cost.
- EAC (Estimate at Completion): This is the current forecast of the total cost the project will incur when it is finished. This estimate is updated as the project progresses based on actual costs incurred and performance trends.
Interpreting the Variance at Completion
The result of the VAC calculation provides valuable insight into the project's overall cost status relative to its initial budget:
- Positive VAC (BAC > EAC): Indicates a favorable condition. The project is currently predicted to finish under budget.
- Negative VAC (BAC < EAC): Indicates an unfavorable condition. The project is currently predicted to finish over budget.
- Zero VAC (BAC = EAC): Indicates the project is currently predicted to finish exactly on budget.
Significance in Project Management
Tracking VAC is essential for project managers because it provides an early warning system for potential budget overruns or underruns. By comparing the original budget (BAC) to the latest cost forecast (EAC), stakeholders can understand the final projected cost outcome and take proactive steps if the variance is unfavorable (e.g., implement cost-cutting measures) or favorable (e.g., identify potential areas for reinvestment or savings). It's a key indicator in Earned Value Management (EVM), a common technique discussed in the PMP domain for measuring project performance.
