Why do some companies make releasing project budgets so difficult?
Have you ever worked in a company where it takes a lot of work to release the project budget? I mean budget release of the funds that your project won’t need, perhaps due to being delivered under budget, or because your company funds projects annually and you won’t be able to spend all that budget that financial year.
Problem: Projects don’t release unneeded budget
I have worked on many projects that are under budget. They don’t spend all the allocated budget, either because they are completed under budget, they are postponed, or sometimes because they are behind schedule and won’t be able to spend the allocated financial year budget (for companies that fund projects by the year).
Some companies make the process to release an unrequired budget amount very cumbersome. That is, transferring budget away from a project that does not need it to another project or to the general pool of department or region funds. The release of this budget could take hours of work, when it should take just minutes. It often takes a lot of time and effort to release project budgets.
Managing the budget on a project is hard enough as it is (see a good summary about managing project budgets at the AIPM). Having a difficult process to release unused budget just makes that even worse.
I have been in some companies where it takes a lot of time (paperwork) to release the unused or unneeded budget from a project. This was usually the case for working in client side companies (i.e. internal projects where we had a budget for each project, we didn’t have to go and win them from clients).
Many times I would have a project in which I could see we wouldn’t be able to spend all the budget allocated for that project in that financial year (the projects were all funded year by year). Releasing the budget would allow other projects to get access to that budget if they needed it.
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However, the process to release the budget was very complicated and very difficult to find instructions on how to do it. Once you did find out how to do so, it usually took 3 to 4 hours of solid work to release that budget. If I was interrupted during that time, which was often the case, it could take me a few days of interspersed work to do the budget release. (Refer to the importance of focus time, which really helped me get this sort of thing completed).
The steps would be something like:
- Find the appropriate manager responsible for that region and discuss the release with them (which often took a couple of weeks to find an available meeting time).
- Fill in two forms, one for which project the budget was going from, and one for where you were sending the budget too (yes, you had to figure out which project needed it or which main budget would get it).
- Find the original budget request documents or evidence for the original required budget amount (which was often difficult if it was not originally requested by you, or you had taken over the project from someone who had left the company).
- Substantiate in a document why you didn’t need the budget, including a comparison to the originally estimated/budget and why you would now need less than that.
- Figure out all the associated cost codes for where the budget was coming from and going to (not just one code, but a cost centre, profit centre, region code, asset code, controlling manager code etc).
- Fill in all this information in a complicated system in our financial software, attach the documents to that system, then fill in notification sections on who would be notified.
And all this didn’t actually release the budget, it just told the finance department and they would then do it (which would often take another hour of their work a few days later).
Because of all this required work, in most cases there was no motivation to release the budget. So few project managers ever released budgets (unless another of their own projects in that region needed some of that budget). The result was that many projects ended the financial year with lots of spare budget that other projects never got access to.
Worse, was that much of our annual budget was set based on the previous year’s spend, so if we underspent, the whole budget was reduced. The next year each project in that region or that department would get less money allocated, some projects would still not spend all their budget, and some projects would not be completed because of lack of budget (i.e. not having enough funds).
Sometimes the only reason a project manager would go to the effort to release budgets on their projects would be to avoid having to do reports explaining why their projects didn’t release their budgets.
Solution: Make it easy to release budget that is not required
A good budget or financial system should make it very easy to release project budget that will not be required.
Ideally, the system should allow you to do a spend forecast, and it would then identify that you will be underspending your budget (i.e. the project will be under budget) and ask if you would like to release the unrequired budget to the general region or department funds. You would tick a box or choose “yes, release unforecasted funds”. Perhaps it would make you fill in a short explanation box (in which the project manager could type a simple explanation such as “the project is complete and will not need further funds” or “the project is behind schedule and will not be able to spend the originally forecast budget this financial year, it will continue progress next financial year with next financial year budget”).
That should be all it takes to release the budget that your project won’t need or won’t be able to spend.
That should take any project manager about 5 minutes, or less.
5 minutes work instead of many hours of work.
The result would be that most or all unneeded budgets would get released regularly for other projects or operations to use that budget. (Refer also to “Meeting Your Forecast Budget Spend Rate”)
Funding projects would be easier. Reporting would be easier. Managers would know much more clearly how much money was available in their department or regional budgets. They would also be able to allocate available funds to current projects that need the budget, or even start new, future, or on hold projects sooner with that available money.
Lesson: Don’t make release of funds difficult, make it easy
Some companies make it very difficult and time consuming to release unrequired project budgets (projects that are under budget). This wastes a lot of time for project managers and financial controllers. It also results in less budget being made available to other projects.
If the release of budget was made easy and quick, project managers would release their unneeded budgets and allow other projects to get the funding they need sooner and easier.
Companies should ensure the process to release project budgets is simple. A simple check box next to the project forecast in the financial system, and possibly a short explanation field should be all it takes.