7. Budget management
Rapid or slow onset, you need to to manage your budget.
You need to get regular reports on how much your project has spent. You also need to produce cashflow forecasts that estimate how much you will be spending in the next month and the rest of the project. This is important to make sure that your office has the right amount of cash on hand to pay expenses. It is also important for you as a project manager to check whether you are spending too much or too little money.
Even with a report on your spending against the total amount in your budget (sometimes called burn rates, or budget vs actuals (BvA)), you will need to know how much you are still planning to spend. You could have spent only 10% of your budget, but still be overspending if you have very large expenses coming up in the next weeks.
To monitor your budget effectively, you’ll need to review the “burn rate”– the rate at which funds are being expended on a project. A fast or slow burn rate is an indication that the actual project implementation is either going faster or slower than originally planned.
Slow burn rate: A slow burn rate may indicate delays in implementation, and not being able to fully spend the funds as of the end of the current year’s budget period, or over the life of the grant. A no-cost extension may be necessary–if so, initiate this process as soon as possible. Remember: a no cost extension may be necessary, but is rarely optimal. You will either be reducing activities to balance out your support costs, or you will have to use budget lines for support costs to pay for activities, and leave you without funds to cover rent, electricity, or fuel.
Fast burn rate: A fast burn rate may mean that project implementation is ahead of plan, or that some activities cost more than planned. This is something you should track to make sure that the level of spending is aligned with the planned project progress. If not, you might have to obligate more funds or cut back on the scope of the project. Both scenarios would require negotiation with the donor and CO management.
How to monitor a budget
Your budget is critical to the success of your project. As PM, you should monitor the financial activities of the project at least once a month. Work closely with the Program Support Unit (Controller or Project Accountant) and agree on the following:
- Critical budget related compliance matters (what you can spend on and how; what processes must be followed (see the finance section)
- Financial monitoring requirements of the donor and your own needs – detailed budget (as approved by the donor), compared with actual expenses, in US$ and original currency of the grant/reporting currency. Always look at award budget and expenses from project start date, with data compared to annual budget and/or life of grant budget.
- Ask the Program Support Unit to help analyze the data by explaining favourable and unfavourable variances between budget and actual amount at budget line item level.