You just got assigned as the project manager for a new initiative at your company. As you dive into the planning, you notice that while there is an overall budget defined, there are no details on how that budget is spread over the course of the project. This makes you wonder – why is it really necessary to have a detailed time-phased budget baseline for my project?
Good question! Having a properly time-phased budget baseline is essential for tracking project performance over time. It allows you to implement earned value management, align costs with the schedule, model scenarios, and forecast future performance. While it takes effort upfront to develop a time-phased budget, the payoff is huge in terms of much better visibility into the health of your project.
Let’s explore the details of why having that time-phased budget baseline is so important for project success.
Time-Phasing Enables Accurate Earned Value Management
Earned value management (EVM) is a methodology that integrates scope, schedule, and budget to assess project performance. It relies on three key measures:
- Planned Value (PV) – The budgeted cost of work scheduled to be completed by a certain point in time. This comes from your time-phased budget plan.
- Earned Value (EV) – The budgeted cost of work actually completed by that point in time.
- Actual Cost (AC) – How much you’ve actually spent to complete the work.
By comparing PV, EV, and AC you can calculate important metrics like schedule performance index, cost performance index, estimate to complete, and estimate at completion. This allows you to identify early if the project is trending over budget or behind schedule.
However, in order to calculate those metrics accurately, you need PV to be an accurate representation of how the budget is phased over time. Without proper time-phasing of the budget, your PV will be off and it will throw off all the downstream EVM calculations. Any performance reports or forecasts driven by EVM will become unreliable.
For example, if you allocate budget evenly across all months of the project, but the actual spending needs to be front-loaded, your PV will underestimate the early months and overestimate the later months. This would make it seem like you are underspending even when you are not.
Proper time-phasing is essential to get those EVM metrics right!
Time-Phasing Aligns Budget With Project Schedule
When you allocate budget costs over time, you are linking spending to actual project activities and schedule. This allows you to plan out when money needs to be available to pay for scheduled work. It ensures the funding matches the cadence of spending as work gets completed.
With a time-phased budget, you can easily track whether execution is aligned with the plan or not. For example, if certain milestones slide but spending remains on track, you could have a problem. Or if spend ramps up faster than planned, it could indicate a risk. This perspective allows for proactive course correction.
Without time-phasing the budget, you lose this project execution view. You’d only know if you went over or under budget in total at the end – too late!
Time-Phasing Supports What-If Scenarios
Another key benefit of having a time-phased budget baseline is the ability to model different scenarios over time. For example, you can assess the impact of a delayed go-live date by shifting budget amounts into future months. Or you can add budget for an approved change order to specific months based on the new scope.
This also enables you to re-plan or re-baseline the budget when significant changes occur. With a few clicks, you can redistribute the budget plan across the updated timeline based on new projections. This level of agility allows you to quickly adapt the time-phased budget when needs change.
Playing out various what-if cases is tremendously valuable for project planning and control. You can answer questions like:
- What if certain tasks take longer than expected?
- What if we need to accelerate our timeline?
- What if the scope increases halfway through?
- What if we only get a portion of the requested budget?
Having a flexible, time-phased budget baseline makes this analysis easy.
Time-Phasing Enables Better Forecasting
With a time-phased budget plan in place, you have the data to forecast how the project will unfold over time. Because you can compare specific months to your plan, you can easily identify when future months are trending over or under budget.
For example, you might see in the data that upcoming months are projected to be 10% over the planned budget amount. This alerts you to potential cost issues down the line, and allows you to take preventive action immediately to avoid those overruns.
Similarly, if execution is slower than planned, you can forecast how that will impact the budget down the road based on the time phasing. This visibility enables much more accurate and further out projections of budget performance.
In addition, with various what-if scenarios at your fingertips, you can model different versions of the future to come up with your forecast range. This leads to high confidence predictions that help you steer the project proactively.
Key Components of Time-Phased Budgeting
Now that you see the immense value of having a time-phased budget, let’s get into the nuts and bolts of how to create an effective one for your project. Here are some key components to think through:
Set the Fiscal Period Structure
First, you need to define the fiscal period timeline for your project budget. This is typically structured in months, quarters, or pay periods depending on your needs. Make sure to sync up the fiscal calendar with your accounting system.
Define Budget Distribution and Curves
Next, determine how you will distribute the budget over the timeline. You can allocate it evenly, front load it, back load it, or shape it based on expected project rhythm. Model multiple curves to assess options.
Enable Editing Past Time Periods
Time-phasing is a living plan, so make sure you can edit past fiscal periods. This allows adjustments if the budget changes or as you rebaseline.
Handle Large One-Time Costs
Watch out for large one-off costs like equipment purchases and allocate intelligently so they don’t skew metrics. Consider smoothing costs like depreciation.
Track Level of Effort Activities
Determine how you will budget for fixed-effort activities like PM work. Estimate, spread evenly, or accept some uncertainty.
Integrate with EVM Processes
Link time-phasing, scheduling, EV measurement and change control together for a unified view.
Getting these foundational pieces right will allow you to build an actionable time-phased budget baseline.
Challenges with Developing Time-Phased Budget
While having a detailed budget plan over time has huge advantages, it also comes with some inherent challenges to be aware of:
- It requires significant upfront planning effort
- Maintenance is needed to keep it up to date
- It relies heavily on having an accurate activity schedule
- The level of detail can be daunting for large projects
- Finance stakeholders must buy into the value
Don’t let these challenges deter you! The benefits far outweigh the extra work. With some elbow grease and the right techniques, a time-phased budget is very attainable.
Best Practices for Time-Phased Budgeting
Here are some proven best practices to employ as you implement time-phased budgeting:
- Start early – Begin budget time-phasing during planning to integrate with schedule
- Involve finance leaders – Get their input on fiscal calendar and tools
- Leverage past data – Identify typical budget cycle curves in your organization
- Build in time to maintain – Plan for regular budget reviews and changes
- Integrate processes – Link budget, schedule and EVM data flows
- Obtain stakeholder signoff – Reviews to validate baseline before execution
- Automate where possible – Use PM software tools to reduce manual work
- Phase large projects – Time-phase budget in smaller chunks
Following these tips will help you be successful with time-phased budgeting and get stakeholder buy-in.
Conclusion
Developing a detailed time-phased budget baseline requires some investment upfront, but pays off tenfold in terms of project visibility and control. By linking your budget plan directly to the schedule, you enable accurate EVM metrics, better forecasting, and effective what-if analysis. This leads to making smarter decisions that keep your project on track.
While no project plan survives first contact with reality, having a time-phased budget baseline allows you to adapt quickly to changes and re-plan the budget according to the current situation. This agility is invaluable for effectively managing costs and scope over the project lifecycle.
So don’t wait any longer – start breaking down that budget by time periods today! Your future self will thank you when performance trends become clear and you can course correct early based on the data. A little time spent now on budget time-phasing goes a long way towards project success.