When looking at budgets, one popular way to determine if a project budget is where it should be is to look at three elements:
BAC or Budget at Completion – This is the budget set at project start.
EAC or Estimate at Completion – EAC represents where the budget is based on actual numbers.
CPI - Cost Performance Index – The determining factor of whether you are over or under budget.
Let’s say our total project budget is $5,000 (BAC), however, after analyzing actual costs we find our budget is set to finish up at $7,000 (EAC). This method of analysis calculation would reveal:
CPI = BAC divided by EAC or $5,000 / $7,000 = 0.72 or the CPI
As far as budgets are concerned, as long as your CPI is less than one percent, you can be assured your project will most likely come in at or close to the budget. If it’s over one percent, you may need to reexamine your tactics.
Other methods of discovering trends include control charts, x-bar charts, and baseline analysis.