A project has a budget of $1 million.

The latest financial report shows that only $350,000 has been spent.

At first glance, the project appears to be in a comfortable financial position. After all, there's still $650,000 left in the budget.

But is that money actually available?

Not necessarily.

One of the common mistakes in project budget management is focusing too heavily on actual expenditure.

Actual expenditure tells us what has already been recorded as a project cost.

But it doesn't necessarily tell us what the organisation has committed to pay.

Consider this example:

Looking only at actual expenditure, the project appears to have $650,000 remaining.

But once outstanding commitments are considered, only $150,000 remains uncommitted.

That's a significant difference.

Outstanding commitments represent the value of purchase orders, contracts and approved variations that have not yet been recorded as actual costs. This distinction is important to avoid double-counting expenditure.

And there's another question worth asking:

How much work remains that hasn't been committed yet?

Imagine that the project still requires:

If those activities haven't been included in the existing commitments, the remaining $150,000 could disappear quickly.

For example, if the estimated cost of the remaining uncommitted work is $200,000, the project's forecast cost at completion becomes $1,050,000.

That's a potential $50,000 budget overrun, even though only $350,000 has been recorded as actual expenditure.

A project can therefore appear to be under budget while already heading towards a cost overrun.

The problem isn't necessarily poor financial reporting.

It's making decisions based on an incomplete financial picture.

Effective budget management requires looking at three different perspectives:

1. What have we spent?

Actual expenditure recorded against the project.

2. What have we committed?

Outstanding purchase orders, contracts and approved variations that are yet to be recorded as actual costs.

3. What will it cost to finish?

The estimated cost of all remaining work, including activities not yet purchased or contracted.

That third question is particularly important.

A practical way to assess the project's financial position is to calculate:

Forecast Cost at Completion = Actual Expenditure + Outstanding Commitments + Estimated Cost of Remaining Uncommitted Work

This calculation assumes that the outstanding commitments and remaining cost estimates are complete, realistic and do not overlap.

It helps determine whether the project is likely to finish within its approved budget, rather than relying solely on historical expenditure.

A project manager shouldn't wait until invoices arrive to discover that the budget is under pressure.

By then, the organisation may already be contractually committed to most of the expenditure.

Instead, financial reviews should identify emerging cost exposure early enough for decisions to be made.

That might involve reviewing scope, challenging additional requirements, managing variations or seeking approval for a revised budget.

It also means regularly updating the forecast as project conditions change.

The objective isn't simply to report how much money has been spent. It's to understand how much the project is expected to cost when it's finished.

And that distinction can make a significant difference to the quality of project decisions.

When reviewing a project budget, are you looking only at actual expenditure, or are you also considering outstanding commitments and the cost of work still to come?

Does your financial reporting show where the project stands today, or where it's likely to finish?

I'd be interested to hear how you approach project cost forecasting and budget control.

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