Three numbers, three jobs
Project financial control rests on three figures that are constantly mistaken for each other:
| Number | What it is | Tense |
|---|---|---|
| Budget | what you were authorised to spend | the past — a fixed baseline |
| Actual cost | what you've spent so far | the present |
| Forecast | what you now expect to finish at | the future |
The budget is set once and frozen. Actual cost moves every time money leaves. The forecast is the only one that should change your decisions — and it's the one most reports leave out.
Why "we're within budget" is a trap
"We've spent $400k of our $1M budget" sounds safe. But if you're only 30% done, your run rate says you'll finish near $1.33M. Being under budget today tells you nothing about where you'll land. Spend tracked against time, with no view of work delivered, is the single most common way overruns hide until it's too late to act.
The discipline: never report actual cost without also reporting the forecast and the work delivered for it. One number out of three is a story half-told.
The baseline: your line in the sand
A cost baseline is the approved, time-phased budget you measure everything against. Without it, "over budget" has no meaning — over what? The baseline is set at approval and only changes through formal change control. Everything that follows — variance, burn, forecast — is measured from this line.
Burn: are you spending faster than you're working?
Burn rate is how fast money is leaving relative to plan. The honest version compares spend to value delivered, not just to the calendar — which is exactly what Earned Value Management formalises. The shortcut question: "for every dollar spent, how much finished work do I have?" Below a dollar, you're burning hot.
Forecasting the final cost (EAC)
The Estimate At Completion (EAC) is the number that should drive decisions. The fastest defensible form assumes your current cost efficiency holds:
If you've earned $300k of value for $400k spent, CPI = 0.75, and a $1M budget forecasts to ~$1.33M. That's a $330k projected overrun — surfaced early enough to do something about it. The full EVM guide works through this step by step.
Contingency vs management reserve
- Contingency reserve covers the known unknowns — risks you've identified and sized. It sits inside the cost baseline and the project manager controls it.
- Management reserve covers the unknown unknowns. It sits outside the baseline and the sponsor controls it.
Confusing the two is how a project "uses contingency" for things it should have escalated. Keep them in separate lines, drawn down on the record.
Reporting money to a board
A clean financial slide carries four numbers and nothing else: baseline, spent to date, forecast at completion, and the variance between baseline and forecast. If the forecast exceeds the baseline, the variance is the headline — and it should arrive with the reason and the recovery option, not as a surprise. Boards forgive overruns they saw coming; they don't forgive the ones you hid.
A control system that keeps the three numbers honest
The Day-One Toolkit tracks baseline, actuals and a live forecast on one sheet — fully offline, every formula visible, ready to hand clean figures to your board. The free Field Guide shows you the method first.