This type of control tracks the project budget, comparing the original budget to the amount of money actually spent up to that point, in order to guarantee that a sufficient amount is reserved for the project to be completed. If it becomes obvious that the project cannot be completed on budget, this control is also responsible for identifying the origin of the problem and updating the work plan accordingly—either by increasing the budget or by limiting the project scope or objectives so that these fit within the remaining budgetary framework.
Many things can affect a project budget: changes in the plan, scheduling delays, estimation mistakes, etc. The project manager must make certain that the project does not stray from the approved budget at any point. If a deviation from the planned budget is detected, the project manager must work to minimize it and to inform all primary stakeholders about it. Budget control can be divided into two components:
- Comparing the budget estimate until project completion with the budget approved in the baseline plan.
- Comparing the portion of the budget used up to this point with the portion that should have been used by this point in the project, according to the baseline plan.
To determine whether the project is on track from a budgetary point of view, it is necessary to compare the updated, planned budget with the original budget, as it was established at the planning stage and recorded in the baseline plan. If the baseline plan was altered at any point in the course of the project, all comparisons should be made against the new plan.
In order to approximate the budget outlay compared to the planned budget at the control point, it is necessary to calculate how much of the budget should have been used until the control point, and then compare this figure to the amount of money already actually spent.
The approximate portion of the planned budget used up to the control point can be calculated using the following formula:
% actual progress × the project budget = the approximate budget to date.
Note that the above formula assumes that the budget is being used at a constant rate throughout the project. This formula is far from accurate; however, it presents a simple way to calculate budget status and usually provides a reasonable estimate.
For example: If 50% of the project has been completed and the original budget was $100,000, then the approximate budget used up to this point in time is 50% x $100,000 = $50,000. If the actual cost at this point is lower than $50,000, then the budget has not deviated from the plan. However, if the actual cost is higher than $50,000, then the project has deviated from the planned budget; it will likely go over budget in the end.
Whenever there is a negative gap in relation to the planned budget—especially if the control findings point out that it will not be possible to compensate for it and complete the project within the planned budgetary framework—it is important to try to understand the reasons for the gap and act to minimize it as quickly as possible.