The forecasting feature of Commercial Project Management (CPM) can be used by project managers to calculate cost and revenue estimates at the completion based on past performance, during the execution phase of projects. Forecasting allows you to arrive at estimates of the following key figures:
Estimate at completion (EAC) – Total projected cost, quantity, or revenue at project completion (Actuals + ETC).
Estimate to complete (ETC) – Projected remaining cost, quantity, or revenue from the forecast period to project completion.
Resource Types based on Plan/Forecast basis
There are four categories in which resource types can be categorized based on Plan/Forecast basis:
- Quantity – The Quantity, Rate, Cost (Rate) and Revenue (Rate) columns will be enabled for planning. Forecasted Cost and Forecasted Revenue are calculated based on Forecasted Quantity.
- Cost and Revenue – The Cost and Revenue columns will be enabled for planning.
- Revenue – Only the Revenue column will be enabled for planning.
- Cost – Only the Cost column will be enabled for planning.
In CPM, the following forecasting methods are used:
- Forecast based on Actuals: This method is suitable for those projects which are time bound and flexible with respect to cost. The Actuals and remaining Plan derive the EAC for the project. The EAC is calculated by summing up actuals from the past periods and remaining planning for future periods.
- Forecast based on Constant EAC: This method is suitable for those projects which are cost bound but flexible with respect to time. When the forecast is executed for the first time, the EAC will be copied as total plan value. The EAC remains constant throughout the forecast process until it is manually adjusted by changing ETC. In case the Actuals are not same as corresponding Planned values up to forecast period, the balanced value is adjusted to the future period. This adjustment is the difference between planned value up to forecast period and Actual value up to forecast period. If the adjustment is negative, then the ETC for the next period(s) will be reduced by this adjustment. Therefore ETC is re-calculated based on Actuals incurred while keeping the EAC constant.
- Forecast based on Configuration: It is the dynamic forecasting method and is the combination of both the above methods. It is suitable for those projects where certain resources are time bound and others are cost bound. Each Resource Type can be configured to follow one of the above forecasting method.
Period Options in Forecasting
The following period options are available for forecasting:
In-Period Forecasting: Forecasting is performed at any time during an open period using the actuals posted up to that point, along with the remaining forecast for the rest of the period. Project Manager is allowed to adjust the forecast for current forecast period.
- Period-End Forecasting: Forecasting is performed while closing the period, that is, when all actuals for that period have been posted. This provides a forecast based on complete actual data for the period.
There are different Planning Functions associated based on forecast method and the period option selected. These Planning Functions contain multiple formulae. Based on the above Resource types, the corresponding formula of the Planning Function will be executed. These formulae are part of BW IP Planning Function which gets executed when user executes the forecast.
Each forecasting scenario is described in detail with examples in the following blogs:
Source link