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Programme Management: What is the impact of reallocating approved project budgets between projects of the same programme on your

Project Earned Value Management (EVM) Performance results?


Quite often in practice programme managers would reallocate project budgets between projects withdrawing monies from one project to fund another project (sometimes called a pull and push approach), normally done using the organisations change control process with the myth benefit that it would reduce time delays from re-applying for additional funds with the portfolio investment committees or the Board. My issue with this approach is that if these funding approval processes were seen as inefficient then the solution should be a process improvement of these processes to ensure that they are responsive to specific requirements, and not implement work arounds. In my view spending project funds outside of the project feasibility projections, business case and rubber stamped budgets is a breach of programme management cost management controls This risk would also result in ineffective project business case tracking. The purpose of Earned Value Management (EVM) is to track the project timelines and budgeted costs performance in a more integrated manner where the costs impact of delays in project timelines could be measured and isolated. In my view the EVM methodology should provide programme managers with an ability to measure the impact of a project that is behind schedule on project funds or an ability to measure the impact of a project that is potentially failing in cost management, and possibly project financial management controls. It is a normal best practice for project managers not to pay for the project work unless the supplier invoice is supported by certified project progress reports of the deliverables.

Earned Value Management is based on two project performance metrics that assist programme managers to manage project health checks, and identify root causes from non-performing projects:
Schedule Variance
This measure/metric could be defined as the difference between what the project timelines performance should be vs what the project performance is, i.e. planned schedule performance vs actual timelines performance. This measure is calculated as % project planned completion minus % actual projection completion multiplied by the project budget. This measure is also however only effective if the project plan was completely baselined, and tracked accurately throughout the project lifecycle. Powerpoints flight plans will not normally achieve the correct measurement results.

Benefits of this metric: It isolates the cost impact of a behind schedule project by identifying a need for additional funds as results of the project delays. This measure should provide the programme managers and project sponsors with indication of additional funding requirements due to delays.

Cost Variance
This metric measure the difference between what the project should have spent based on actual project progress, and what the same project actually spent based on the actual project progress. It is calculated as % actual project completion multiplied by the project budget cost minus % actual project completion multiplied by the year to date actual costs (per accounting records). It is however only effective if the project plan was baselined and tracked accurately. Powerpoints flight plans will not achieve the correct measurement results. It is also important that the project costs are allocated correctly by organisations finance departments, any misallocation of project costs outside the relevant project accounting codes will skew this metric result.

Benefits of this metric: It isolates the cost impact of a project that is overspending. The programme manager will be able to determine if additional budget that would be required as results of the project paying more than the planned cost of the project deliverables. This is also an important metric to identify whether there are project initial budget estimates issues, and could be used to validate the project budget projection assumptions made during the business case development.

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What is my general recommendation? I believe that an optimisation of the related


project funding processes should rather be performed by streamlining activities required to accommodate both initial project funding approvals done during the portfolio management investment prioritisation stage, as well as additional project funding requirements as a result of project overspending or delays. In Lean Six Sigma framework this streamlining is called the law of velocity, meaning that the process effort should be designed to be in sync with process output/results). Additional funding approval process timelines should generally be shorter than the initial project budget approval process... .

This article was written by Joshua Makena (a South African Management Consultant) Contact Joshua on makena.joshua@gmail.com for further discussion