"How much will it cost in the end?" is the most important question a developer asks, and the hardest to answer honestly. The forecast final cost, known in the industry as the estimate at completion (EAC), is the number that answers it. It is worth understanding what it is built from, so you know when to trust it.
The basic formula
For each trade in the budget:
Estimate at completion = signed commitments + approved variations + estimate for works not yet ordered
It sounds simple, but every component needs a decision.
1. Signed commitments
This is the most certain component: what has been signed with contractors, suppliers and consultants. Even here, watch the terms: is the contract index-linked, is it lump sum or measured, and are there optional items not yet triggered.
2. Variations
Only approved variations go into the forecast. Variations that have been submitted but not yet approved are shown separately, as a risk, so the developer sees the worst case too without mixing it with reality.
3. Trades not yet contracted
This is where people get it wrong. A trade not yet ordered is forecast at its budget, but it must be marked as an estimate. If market prices have risen since the budget was built, the estimate should be updated, always with a written explanation: what changed, and on what basis.
4. Indexation
In index-linked contracts, indexation differences are a real cost. They are worth showing as a separate line, to distinguish an overrun caused by the index from one caused by price or scope.
5. Contingency
Contingency is part of the budget, not something on top of it. When it is used, record why. When it is released at the end of the project, that is a real saving.
Where the forecast misleads
- When variations are approved verbally and not recorded.
- When a trade not yet contracted stays on an old budget without being marked.
- When indexation isn't calculated until the invoice arrives.
- When the forecast is updated only once a quarter.
FAQ
Can the estimate at completion go down?
Yes. When a contract is signed below budget, or when unused contingency is released.
Who is responsible for updating the forecast?
Whoever runs cost control, based on every new commitment, variation and payment.
