Project budgeting by financial year vs lifetime?

Question

We're discussing how project budgets will be set and tracked. My view is that the budget should be set for the duration and tracked that way. Our finance team have a preference for the budget to be for the financial year with what happens in the next year covered in future financial planning. I can see where our finance colleagues are coming from but have concerns:

• if we pro-rata or estimate per financial year:
  • What happens if we exceed budget this year as we are ahead of schedule (great for project but will cause a finance problem)?
  • What happens if our spend is below budget? How will that work for the next year (carry over unspent amount?
• What is the problem for the finance team if we set the budget for the entire project and do not pro-rata it or estimate per year?

Appreciate the guidance here; getting polarized opinions and need to know if there are pragmatic approaches out there that work ....

Answer 1

Your business is an operations that make money performing projects. Your business is based on its fiscal year and, if public, to the fiscal quarter. The project's year is irrelevant to the business. As a PM, you manage your budget against the project year's budget as you deliver the scope. Then, you become an operations manager and you report your investment's performance against your business' fiscal year.

So you need to do both. You need to build your project budget and then calculate the revenue and profit you're going to deliver to your business against the fiscal year. Every seller of service is like this. Every single one.

Answer 2

To extend slightly on David's comment – every company of any size has both "the financial strategists who take a long-term view" and ...

...

... "the Corporate Tax Accountants.™" :-D

Therefore – your financial concerns will be simultaneously concerned with the overall "spend" of the multi-year project, and the underlying annual or quarterly cycles. Of particular importance to you will be the ability to project future project behavior against both of these perspectives at the same time, and to give responsible management in each case the most pro-active information possible.