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Forecasting spend to completion - CITI
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Forecasting spend to completion

Why is forecasting the total spend of your portfolio important?

It allows you to optimise the spend on your portfolio and ensure you have sufficient funds available to complete your portfolio, prevent overspend or re-direct underspent funds.

If there are insufficient funds it will prevent the portfolio from delivering everything that is planned and the realisation of related benefits.  Overspending will reduce the return on investment of the planned benefits, whereas under spending will delay other initiatives whilst the funds are being identified and re-directed.

Good portfolio management requires prompt corrective action to be taken in the above situations to minimise any adverse impact on the business.  Making this happen involves sound financial information and forecasts upon which to base decision making.

Do you have realistic forecasts of the funds required to complete your portfolio?

Too often financial reports just show spend to date and sometimes for the current financial period only.  Rarely do portfolio, programme and project reports show the estimated forecast spend required to completion.  It is often incumbent on stakeholders to work out the spend to completion figure by deducting the spend to date from the budget.  However, that isn’t always the answer and is never right in an over or under spend situation.

In order to forecast the funds required for completion it is important to know what has been achieved to date and importantly what is left to be delivered.  Only by looking at ‘what is left to be delivered’ and determining corresponding realistic estimates can an informed figure for completion be obtained.

For estimates to be of value they need to be underpinned by realistic assumptions which will require periodic testing to ensure they remain valid.  As the estimates are aggregated into forecasts they should be expressed as ranges to indicate the level of uncertainty and allow stakeholders to understand how likely it is the final spend figure will be achieved.  The size of the range indicates the level of uncertainty.

Are your financial figures represented visually to make it easier to identify trends and make comparisons?

The presentation of financial information in a visual form greatly increases understanding and comprehension by allowing trends and differences to be more easily spotted.  As an example, an ‘S’ – curve represents the typical profile of expenditure on a project or programme and is a useful tool for seeing if the forecast follows on from the spend to date in line with a typical profile.

Do you have a baseline forecast to compare against?

In capturing the original estimate/s, a baseline (planned budget) provides a point of reference against which the actual costs and latest estimate/s can be compared.

Do you undertake variance analysis?

Identifying the difference between the original estimate/s, actual costs and latest estimates allows the causes of the variances to be investigated and better understood.

Do you undertake corrective actions based on analysis of variances?

Understanding the causes of variances allows corrective actions to be taken to reduce the variances.  It also informs lessons learned so that future estimates and baselines are more valuable.

How useful is the financial information being provided by your portfolio reporting function?

The following checklist provides a quick test of your organisation’s ability to provide useful financial forecasts from which to make efficient and effective portfolio management decisions.

Forecasting spend to completion - checklist Yes No
Do you have a realistic forecast of the funds required to complete your portfolio?
Do you have to work out the figure for completion by deducting the spend to date from the budget?
Are your estimates underpinned by realistic and tested assumptions?
Do the estimates have ranges to indicate the level of uncertainty and likelihood of meeting the final figure?
Do your estimate ranges reduce as your projects and programmes progress?
Are your financial figures represented visually to make it easier to identify trends and make comparisons?
Do you have a baseline forecast?
Do you undertake variance analysis?
Do you undertake corrective actions based on the analysis of variances?

If you can answer mainly yes to the checklist questions you are in a good position to:

  • Understand the true cost of change
  • Structure your portfolio around what is affordable
  • Set future budgets
  • Re-direct underspent funds
  • Analyse the reasons for variances and take corrective action
  • Inform lessons learned

If you answered mainly no to the checklist questions it may be time to overhaul your portfolio forecasting.

Please contact CITI if you would like to discuss any aspects of forecasting the spend to completion of your portfolio on 01908 283600.