In Project Management and in Business, I often see people struggle with these three financial concepts and the difference between them: budget, forecast and actuals. Some people mistakenly think they are the same thing or often confuse them. But each of these have their own meaning and purpose and understanding the difference between them and how to correlate them or compare them is actually important. So here we go:
Think of this as your baseline. So the amount you originally planned to spend on the project at the beginning, before you even start the project. In total and over the lifetime of the project. This is generally what you commit to before you even start the project and what you include in important documents such as the Business Case, Project Brief, Project Plan and so on. The budget is also what you’re often measured against. If you’re over it, it’s not good. And if you’re below, it’s not good either for the following reasons: it might be used to then reduce the budget of future projects or people might think that you had too much of a buffer (contingency) in what you originally proposed and that might play negatively towards your credibility in future projects. On the other hand, people do like seeing that you’re spending less than what you planned to spend so in a way it’s also a good thing, but remember being more than 10% below budget is generally a two edged sword due to what I already explained above.
The Forecast is the estimate of the total amount you project you will spend on the project at a particular point in time. So it’s like snapshot and considers what you have already spent to date, plus what you estimate you will spend in subsequent months. The total of these two is what we consider the Forecast and it can be over, under or equal to the budget. In the graph above it is over, meaning, we are projecting we will spend more than what we originally planned to spend. So we will be over budget.
Actuals represent the total amount of what you have spent to date in particular point in time. So it looks at the past, historical data and adds up your total spend. In this particular point, Actuals are quite different to the Budget and Forecast which are both estimates and consider more future values. With Actuals there is no uncertainty or guessing, it’s a fact. Real data, reflecting what has already occurred, what you have spent in total to date. So when people say the “actuals for June” they are referring to what you spent in the month of June, after the month closes and you go back and review all your project costs and expenses and add them up.
In practice you are often reviewing and “playing” with these numbers and comparing them against each other to make project or business decisions.