Budget Phasing 101
A question I am often asked is: ‘What is budget phasing and why is it so important to the success of a project?’ The answer to this will vary from project to project, however as a rule: Phasing provides the only real way of understanding spending within a project.
Phasing is crucial to a cost engineer. You can commit resources in order to achieve best use of your budget. Are you, for instance, building a pipeline? Then it’s likely that the majority of your spending will occur at the start of your project, therefore use of a Front Loaded profile is more likely.
Or perhaps you plan to take on more staff during the mid-phase of your project… in which case you can elect to use a Bell Curve.
These fine adjustments can make the difference between being on budget and vastly underestimating your spending.
Why is it used?
To see your budget spread out in front of you and the ability to control how you allocate budget throughout the duration projects is of great benefit.
A key decision you may face over the life of your project is your choice of the phasing method:
- Automatic Phasing is where a single value is entered and associated with a specific profile curve, start date and end date. The system then calculates how this value is to be used within each reporting period, as covered in the first section of this article.
- Manual Phasing is where single values are entered manually against specific dates or milestones.
Manual phasing is of greatest benefit when the projected spend is expected to be irregular and does not follow any consistent profile. For example, suppose you were executing a project in the Arctic. You would expect that the work planned and hence forecast spend would be reduced in the winter months and pick up again in the spring. If you were using an automatic phasing method, your budget could not be appropriately reduced for this short period. Thankfully, manual phasing methods facilitate the more accurate capture of the forecast spend as it fluctuates over the winter period.
Phasing in Kildrummy® CostMANAGER
Back in May 2012, we published an article explaining how budget phasing is used in Kildrummy® CostMANAGER (KCM). In KCM, to enable phasing capabilities, you only need enter start and end dates along with a profile for each budget item. Profiles are a fast way for users to define their spending, of which there are many prebuilt into the software. Additionally, users can elect to create their own profiles for even further customization.
Our understanding of the importance of phasing has driven many of the core design decisions within our cost solution.