Financing Strategically

Tracking budgets is important to the success of a program or state initiative. One way to evaluate an initiative’s health is to track the difference between the original plan and what is actually happening. This gap is better known as variance, a comparison of the intended or budgeted amount and the actual amount spent. Variance analysis is the practice of comparing actual results to what was planned or expected. Ensuring that variances in the budget and spending are monitored and addressed is imperative.

Without a clear picture of what the initiative will produce, it is difficult to determine how long it will take or how much it will cost. A sound budget management practice is to review the scheduled baseline of the approved budget for a project or initiative, which can then be used as the basis for measuring and reporting budget performance. The cost baseline is the approved time-phased budget that cost performance will be measured against. It is determined by adding the costs for a specific period or phase, which requires assigning costs to project tasks. 

Allocating costs to components may be time consuming, but it allows for more detailed and accurate cost-performance reporting.[61]These practices ensure that budgets are tracked, reviewed, adjusted, and managed to certify that outcomes are achieved. Key steps to establish schedule and cost baselines in the budget process include the following:

  1. Develop the schedule by identifying the activities and tasks needed to produce each deliverable
  2. Identify resources for each task
  3. Estimate how long (in hours or days) it will take to complete each task
  4. Estimate the cost of each task using an average hourly or daily rate for each resource, plus any fixed costs associated with the task.
  5. Determine which tasks are dependent on others and then develop the critical path
  6. Develop the cost baseline (a time-phased budget to measure the project's cost performance); to do this, add the estimated costs by task or by time
 

[61] Suchan, J. (n.d.). Integrate variance tracking into your project change management process [Web page]. Microsoft. Retrieved from https://support.office.com/en-ie/article/Integrate-variance-tracking-into-your-project-change-management-process-58908699-6304-4fde-ae72-0c26b4e4d927#.