Budgeting

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Essence

Budgeting in project and program management is foundational to successful project delivery, serving as a strategic mechanism for planning, allocating, and monitoring financial resources. The essence of effective budgeting lies in its role as a comprehensive financial roadmap, guiding project and program managers in estimating costs, allocating resources judiciously and ensuring financial control throughout the project lifecycle. Skilled managers recognise that budgeting goes beyond mere cost estimation; it involves aligning expenditures with strategic objectives, prioritising activities based on impact and adapting the budget dynamically to unforeseen challenges.

Proactive financial planning is at the core of budgeting, allowing project and program managers to anticipate risks, optimise resource utilisation, and maintain fiscal discipline. The essence of budgeting is about finding the delicate balance between achieving project goals and adhering to financial constraints. By fostering financial accountability, providing a structured framework for decision-making, and enhancing stakeholder communication, effective budgeting plays a pivotal role in the success and sustainability of projects and programs.

Experience

Financial literacy is the cornerstone of budgeting for projects and programs. I was first introduced to finance as an undergraduate with a specific accounting module on the profit and loss account, balance sheet and cash flow statements. This knowledge was refreshed and cemented while studying for my MBA and taken a step further with a module specifically on corporate finance. At Greencross, easyJet and Rabobank I worked closely with the CFO and throughout my career I've been able to communicate with the finance team using their language.

In most project settings there are delivery costs and on-going operational costs. Delivery costs are largely capitalised, although finance rules vary as to what components need to be expensed. With the advent of software services and cloud computing more of a project delivery costs have become an operational expense. It's important to meet with finance stakeholders and determine the rules per organisation.

The costs that follow the project closure are usually always an operational expense, and they're important for the business case when calculating the benefits of a program. This should also include the capital depreciation component of the project. When pulling together the financial slides it is important to have these 3 elements clearly articulated and reviewed by the finance team. At one organisation there was ambiguity on whether the first year of a software licence was project expenditure, or whether it was prorated until handed over to production. Members of the finance team had different interpretations and I had to arrange a meeting with the head of finance to resolve the ambiguity. These things are important; the board meeting is not the place to be questioning whether an item can be capitalised or not.

I always establish a mechanism to monitor and control program expenses. Often there are tools to support this, but again sometimes you need to set up your own spreadsheets. At IBA, for every statement of work approved, I manually tracked the invoices so it was always clear in my reports whether a cost was actual, committed or forecast.

In MS Project it is possible to track fixed costs, use costs and resource costs. Also, it supports earned value financial reporting. At NSW Rural Fire Service, all my projects used this system. I'm familiar with theory and the acronyms, e.g. Earned Value (EV), Actual Cost (AC) etc. and KPI's such as Cost Performance Index (CPI) = EV / AC etc.

In SAFe™, there are new approaches to funding programs with Lean Portfolio Management. Lean Budgets are agreed with percentage allocations to different types of investment. This way a sensible allocation can be given to innovative pilot projects to demonstrate their value. Lean budgets shift the focus from funding individual projects to funding the value delivery process. This encourages a holistic view of how value is created and delivered to customers. It is also better aligned to the agile delivery approach where scope is not fixed but there are fixed increments and an expectation of value.

Credentials