Project Toolkit

Financial Forecasting

Financial Forecasting

Predicting project costs to completion and managing financial variance.

Financial Forecasting

Financial forecasting predicts the final cost of the project based on current performance and remaining work.

Purpose

Financial forecasting enables:

  • Early warning of budget issues
  • Informed decision-making
  • Proactive cost management
  • Stakeholder confidence
  • Accurate reporting to governance

Key Forecast Metrics

Metric Description
Budget Approved funding
Actual Costs incurred to date
Committed Contracted but not yet spent
Forecast Predicted total cost
Variance Difference from budget
EAC Estimate at Completion
ETC Estimate to Complete

Forecasting Process

flowchart LR A[Gather
Actuals] --> B[Review
Commitments] B --> C[Estimate
Remaining] C --> D[Calculate
Forecast] D --> E[Analyse
Variance] E --> F[Report &
Action] classDef blue fill:#108BB9,stroke:none,color:#fff class A,B,C,D,E,F blue

Calculating EAC (Estimate at Completion)

Method 1: Bottom-up

EAC = Actual + Estimate to Complete

Re-estimate remaining work based on current understanding.

Method 2: Based on current performance

EAC = Budget / Cost Performance Index (CPI)

Assumes future performance matches current trend.

Method 3: Based on remaining budget

EAC = Actual + (Budget - Earned Value)

Assumes remaining work will be completed at budget rate.

Earned Value Forecasting

Metric Formula Meaning
CPI EV / AC Cost efficiency
SPI EV / PV Schedule efficiency
EAC BAC / CPI Forecast total cost
ETC EAC - AC Remaining cost
VAC BAC - EAC Variance at completion

Interpreting CPI

CPI Meaning
> 1.0 Under budget
= 1.0 On budget
< 1.0 Over budget

Forecast Accuracy

Forecast accuracy typically improves over time:

Project Phase Accuracy Range
Initiation ±50%
Planning ±25%
Early Delivery ±15%
Mid Delivery ±10%
Late Delivery ±5%

Variance Analysis

When forecast differs from budget:

Question Purpose
What is the variance? Quantify the gap
Why did it occur? Identify root cause
Is it one-off or trend? Assess future impact
Can it be recovered? Identify corrective actions
What decisions are needed? Inform governance

Managing Cost Overruns

Option Description
Reduce scope Defer or remove features
Improve efficiency Optimise delivery approach
Use contingency Draw on risk reserve
Request more funding Seek budget increase
Accept variance Proceed with known overrun

Forecast Report Content

Section Content
Summary Key figures and RAG status
Actuals What’s been spent
Commitments What’s contracted
Forecast Predicted total
Variance Comparison to budget
Trend Direction of travel
Actions Corrective measures
Risks Financial risks and mitigations

Forecasting Frequency

Phase Frequency
Initiation Monthly
Planning Fortnightly
Delivery Weekly
Go-live Daily

Common Pitfalls

Pitfall Mitigation
Optimistic forecasting Use data, not hope
Ignoring commitments Track all contracted spend
Infrequent updates Forecast regularly
Not investigating variance Always understand the why
Hiding bad news Report honestly and early

Forecasting Checklist

  • Actuals collected and reconciled?
  • Commitments identified?
  • Remaining work estimated?
  • EAC calculated?
  • Variance explained?
  • Trends identified?
  • Actions defined?
  • Report distributed?
Last updated: 13 January 2026
Themes

Forecasting

Financial