Project Management

The Importance of a Time-Phased Budget

From the The Money Files Blog
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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 GirlsGuideToPM.com.

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Time-phasing your budget is not the most exciting part of project management for most people (oh, is it just me??) but it’s so important if you are going to use EVM on your projects. EVM lives and dies on being able to compare PV, EV and AC over time – that’s how you work out whether your project is on track. The performance metrics and reporting are fundamentally based on those measures, so if the data underpinning them is wrong… well, your whole set of EV reports are going to be pretty pointless.

That’s why time-phasing is important. You should be able to pinpoint when the money (and effort) is going to be spent in order to plan out the work. Then your PV (Planned Value, but you knew that, right?) is an accurate representation of the baseline budget and how that is spread over the life of the project. PV is also a major part of the EV calculations, so if you get it wrong, the numbers coming out in your EVM reporting are not going to reflect “real” project progress. And that doesn’t even take into account any errors in capturing Actual Costs.

Normally on projects – at least the ones I’ve worked on that have not used EV – we know the budget, and we might have a broad overview of when that money will be spent. Monthly budget checks allow the team to stay on track, but generally as long as the numbers look OK and we’re still within tolerance of the forecast, that’s enough. In an EV environment, that’s not enough. The budget has to be split over time because that is how you track performance and variances.

Here are some examples of situations where the team might find it hard to get the information correct during the planning phase.

Too many Level of Effort work packages

Work packages are the bread and butter of EV: each work package contains the information to deliver, monitor and control the work, along with time and budget estimates. However, level of effort work packages don’t have any special information: basically, you just split the cost evenly over the work package. This is perfect for activities that are hard to track like ‘project management activity’. I always have difficultly apportioning my time on a project as sometimes it’s more, sometimes it’s less, and I never count the time thinking about the project on the bus or while I’m cooking dinner. It’s hard to truly estimate what it takes to do the project management on a project.

However, if you have work packages that could be tracked differently and are not, because it’s too hard or you are too busy to come up with a better way, then that is going to skew the overall reporting. EV is all about the details!

Accounting for large costs

Let’s say in one work package you need to buy a whole lot of computers. We had to do this on one project and most of the cost was incurred in a single month, because bulk buying is obviously more cost effective than buying PCs here and there throughout the project. I attributed all the costs in the month that we spent the money, but the finance team apportioned the costs across the project evenly based on the depreciation of a capital asset. From then on our reports did not match up. That’s not specifically to do with EV, but it goes to show how different ways of apportioning costs can create an issue with reporting.

If you have a large cost coming up, that’s going to skew your EV reports. Consider the impact that will have and whether there are other ways to reflect that so your performance metrics stay true to reality.

Time management

The simplest situation that creates an issue with EV reporting on a time phased basis is simply not doing the time phasing. For example, you haven’t allowed for there to be more effort required at the start of the project or during project testing, in comparison to the steady state of delivery during the execution phases.

Time-phasing needs to reflect the way that EV is credited to the project too, as not all work packages will use the same approach. I’ve written before about ways of tracking effort, using split milestones (like counting 25% of the work complete as soon as it begins, then 50% when you hit the halfway mark and then 100% when the work is done). If the EV is “supposed” to be phased more evenly than that, you will get blips in the reporting.

That’s quite a simplistic way of explaining it but I’m sure you see what I mean.

Overall the take-home message from today is: make sure your PV is time-phased in an appropriate way that reflects how EV is being credited to the project. Easy, right?

Posted on: December 21, 2021 04:00 AM | Permalink

Comments (3)

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EV means a lot of preparation as you have notibly made mention of and accurately tracking a project is as important. I was hoping to see PM software that can assist with the basics of EV and then the more advanced part to be automated removing manual action to try and calculate it in typically a spreadsheet.
Good explanation.

Elizabeth, thanks for sharing well written and practical advice on how to manage project budgets applying EVM. Often times it's hard enough getting teams to go beyond straight line budgets. We can always do better. As an aside, really like the use of visual headers in your posts and layout of the content. Makes the information easy to engage with. Keep doing what you're doing!

Very nice paper on project management as funding of activities as per actual progress against Plan Value or Earned Value against time is very important

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