Project Management

Stage Budgets (for Project Board Members)

From the The Money Files Blog
A blog that looks at all aspects of project and program finances from budgets, estimating and accounting to getting a pay rise and managing contracts. Written by Elizabeth Harrin from

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Categories: budget

stage budgets

So you’re a new member of the Project Board? And wondering how to approve funding for the project?

Come in, sit down, let me tell you what to expect!

First, you should know that every project-led organisation tends to do things in a slightly different way, and managing money is no exception. So you’ll need to find out exactly how your PMO process works for project funding. What I’ll describe here is a generic, common process. There might be unique tweaks for your environment, depending on how your PMO and exec team work together, what country you are in, whether you are a non-profit, and so on.

But broadly, this is how project funding approvals work.

Funding in principle: the business case

Projects start with a good idea, which is summarised and explained in the business case. At this point, senior decision makers will choose to accept (or reject) the project. If it goes ahead, they’ve approved the funding in principle, even though no one actually gets the money to spend at that time.

Typically, projects are prioritised by importance and need, so your project might not get started for a few more months. When the time comes for your project to start, the project moves into project initiation (kick off) and work can begin.

Stage budgets

Budgets are typically handed out in phases. If you have a 5-year project, for example, you won’t get handed all the cash on Day 1. That’s bad business planning because there might be other things you can be doing with the Years 2-5 money right now. Plus, I expect it would give your business a massive cashflow problem to tie up money for that length of time when you aren’t forecasting to spend it for ages.

So money is dripped out, normally linked to the project stage.

When the project begins, you’re in the kick off and planning phase, so the money is allocated for the planned work happening in the current phase.

When you reach the end of this phase, you’ll move into the next phase of the project. There’s normally a Project Board meeting or other approval point, at which everyone agrees that the project is on track, going to deliver what it said it would, and it’s worth carrying on with the work.

You approve the project to continue, and that is the milestone that releases the next wave of funding for the next phase of planned work.

Change budgets

You’ll also be asked, in your capacity as a Project Board member, to have some degree of oversight over the change budget.

Change budgets are money set aside to pay for changes. The project budget only covers the planned work. Changes – the clue is in the name – are changes to the original scope that you didn’t know about at the time of planning the original budget. And normally changes cost more. You’re either paying to redo work, or to increase the scope and add extra stuff in.

The change budget is there to cover the cost of changes. The Project Board can sign off on a change and release the money from the change budget to pay for it.

Note: the change budget isn’t there as a lovely cushion for overspending. If the project manager asks to dip into it but there isn’t actually an associated change, then your answer should be no. It’s not there to fund general bad planning. If no one requests a change, then you can’t spend it!

Risk budget

The final type of budget that the Project Board will get involved with is the risk budget. Again, this is a budget only to be used for certain things, not as a slush fund to dip into whenever you feel like the project needs a bit extra to help get over a challenge.

The risk budget is to pay for risk management activities and the impact of risk. Once a risk has been identified, and the financial impacts of it are known, the project manager can ask the Project Board to approve spending. The money goes towards taking steps to mitigate or better manage the risk in some way. Or it could be used to pay for whatever is needed at the point the risk occurs.

Don’t let project managers spend it without it being attributed to a specific risk management task! And if you are feeling really strict (or if your PMO dictates) you shouldn’t use the risk budget for any risk other than the one that was specifically allocated at the time.

Personally, that final clause feels a bit draconian, but look at your local rules.

So that begs the question: if you can’t use change and risk budgets to deal with things other than changes and risks, what happens when the project goes over budget?

Great question!

You decide. The Project Board either needs to decide that the project is “worth” the extra and puts extra money into the project. Or it decides the business can’t fund that. Your business is not an unlimited pot of money. Being careful with how it is managed is the only way to ensure more projects come in on budget, every time.

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Posted on: October 15, 2019 09:00 AM | Permalink

Comments (10)

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Very interesting article., thanks for sharing

Dear Elizabeth
Very interesting is your approach
Thanks for sharing
I wish I could read a little about your opinion and approach to budget reserves

I am little confused here. Don't you think that changes are nothing but inherent risks and should be part of risk budget.

@Sanjeev, no I don't think that changes are inherent risks. I know there is a school of thought that keeps them under the 'risk' umbrella, but personally I prefer to categorise them seperately. I think it's clearer for stakeholders and the process they follow is different.

@Luis does this help:

Dear Elizabeth
Thanks for the reference.
I will carefully read the content on the link you left
In this article did it make sense to also address this point of reserve budgeting?

Timely and very interesting insights thank you for sharing!

It certainly helps to have a solid reserve analysis to determine those 'known-unknown' contingency and of course the 'unknown-unknown' management reserves...…. however, the fundamentals are simple, if the business case no longer shows continued business justification should that project continue...… we already know the answer to that....

Many thanks Elizabeth, keep sharing

Informative post....Thnx for sharing Elizabeth!

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