Budget v. Funds – Really Understanding the Difference
For those working within the field of earned value management, a perennial problem is recognizing that there is a difference between Budgets and Funds, and understanding the distinction between the two. Failure to grasp this essential characteristic of earned value management hampers systems and practitioners alike. Too frequently, customers force contractors to make changes to baselines because of funding changes. Too frequently, bosses attempt to match budget authorizations to funding limits. Too frequently, project managers blithely ignore one of the most potent differentiators of managing projects using earned value management concepts. What are budgets? What are funds? How does one decipher the difference between them? When is it okay to change the budget? What about changing the Funds? Can a project team change one without changing the other? The answers to these questions are critical to the successful use of earned value metrics. Even more critical: properly defining and using budgets and funds is essential to the development of valid project data. Budgets and Funds are derived from the same source, but they are not the same thing. Confusing one with the other greatly diminishes the power of earned value management to inform and guide today’s sophisticated project manager.
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