06 June 2022 at 01:00AM
PMI Honolulu Member Kenneth Smith's article gets published in PM World Journal June 2022 Issue
Monitoring & Analyzing Project Costs: PMBOK+PLUS Tools & Templates to Facilitate Financial Analysis
By Dr. Kenneth Smith, PMP
The traditional financial management practice of assessing Project Cost Performance by comparing ‘Burn Rates’ vs cumulative baseline budgets is fatally flawed; resulting in erroneous assessments most of the time! This is a shocking assertion and situation — to say the least – deserving of further explanation; and even more importantly, Rectification.
The ‘root cause’ – to cite a contemporary catchphrase — is because the traditional practice is only valid for analyzing PROJECT expenditures when Projects are ‘On Schedule;’— which is not very often.
Indeed, during implementation, changes in both work accomplishment rates and related costs are frequent, and thirteen (13) possible combinations of work performance vs. the project schedule, budget and actual cost exist. Of these 13, only three are when the project is ‘On Schedule.Thus, in most situations (77%), traditional financial analysis reports ‘False Positives,’ ‘False Negatives’ or incorrect amounts!
For more information contact Dr. Kenneth Smith