Monitoring and Controlling Project Budget
Monitoring and controlling the project budget ensures that only the appropriate project changes are included in the budget baseline, that information about authorized changes are communicated and corrective actions are taken by those in charge. The action of budget control is also a process of managing the budget.
Budget management is the process by which costs or expenses incurred on the project are formally identified, approved and paid. Purchase order forms are completed for each set of related project expenses such as consulting services, equipment and materials costs.
Depending on the authorization level the purchase order forms are approved by the project manager and recorded by the finance unit for tracking, donor reporting, and auditing purposes.
Controlling the budget is a critical responsibility of the project manager, and it is equally important that the organization defines the roles and responsibilities of all parties involved in budget control.
Usually, the finance department responsibility is to record, track and monitor the budget from a cost accounting perspective and generates reports for the organization management and the donor as part of compliance requirements such as ensuring the correct accounts are properly used and recorded.
The finance unit is not responsible for monitoring if the project budget follows the project goals and targets, that is the responsibility of the project manager who needs to use the reports and monitor the budget and determine if the resources are used according to plan and identify any deviations, changes or modifications to the budget.
The emphasis of project budget control is fundamentally different from the traditional cost accounting. Cost accounting deals with issues involved in reporting the expenses to the correct components of the established budget cost centers and account codes and focuses on collecting accurate actual cost information with specific attention to the elements of the code of accounts. On the other hand project budget control, on the other hand, focuses on areas of described in the WBS.
Cost accounting is not the main concern of the project manager it is the expenditure related to the specific deliverables of the project. Cost accounting usually focuses on historical information, whereas project budget control focuses on improving performance and predicting the future.
Small projects may work through the procurement and accounting unit of the organization’s main financial function. The project manager usually maintains basic information as part of the project’s control and reporting activities.
Larger projects may need their own finance capability. Large, complex or joint-partnership projects might even need a professional accountant and team to deal with the volume of work.
Some projects under a joint partnership are run as entirely separate units requiring their own legal, financial and organizational structure. The project may even use accounting software to manage the project’s finances independently of the organization’s overall accounting, but data would be consolidated into the parent organizations’ books.