Monthly Burn Rate
Note: This article is updated at Monthly Burn Rate.
One of the most useful patterns I’ve found to stay on top of a project budget is to think in terms of a monthly burn rate. As a program manager, one of my responsibilities is managing a budget. In the early days, I hated managing the budget because it always seemed like a lot of moving parts and more complex than it needed to be. That’s because it was.
What I found is that thinking in terms of a monthly burn rate, helps simplify the budget and chunk it up into manageable parts. I’ve managed projects over a million dollars and I’ve managed much smaller ones. This approach scales up and down. The monthly burn helps avoid surprises at the end, and it helps you keep a pulse on the spend without getting mired in details, until you need to.
Knowing the monthly burn rate makes it easy to calculate the overall spend. It also makes it easy to play out what if scenarios, such as when there are budget cuts. It also makes it easy to do draft ballpark figures, or to calculate your ask in terms of dollars if you need to extend your project.
What I like about the monthly burn rate is that it’s a big enough chunk of time that you can see patterns. A monthly burn rate also works well for managing a portfolio of programs and projects. For example, if you’re business has an overall budget you need to manage too, then you should know at your fingertips, how many big and small projects you can run in parallel.
Once you start trying to figure out the monthly burn rate, a lot of things fall into place quickly. For example, you can ask questions like, what’s the smallest monthly burn of your successful projects? What’s the average monthly burn rate across your projects? What’s the largest monthly burn rate? This can lead to finding ways to do things better, faster, cheaper, and to cross-pollinate your project practices more effectively.
Your monthly burn can also help put things in perspective. For example, at the end of the month, are you flowing the right value or making the right impact for your money’s worth?
Once I switched to thinking in terms of the monthly burn, a lot of the previous budget management complexity went away. I think having a simpler mental model forced me to ask better questions. For example, when should the payment milestones be for any vendor resources? Could those be consolidated to the same day each month? When is the right time each month to review the work? Are there any anomalies in terms of vendor rates? Etc. Instead of manage a composite of complexity, I was able to focus on managing well to the month. If I took care of the days, the weeks too care of themselves, and if I took care of the weeks, the months took care of themselves, and so on.
In any case, thinking in terms of a monthly burn rate helps you quickly calculate potential project spend. Once you get a baseline, you can quickly play around with variables, such as, what would the ideal team of resources be and what would that cost each month? What would the minimum team of resources be and what would that cost each month?
This pattern has helped me make better choices around things like whether to start with a full team, or whether to add resources downstream, or whether to roll people off the project. Budget is a very real constraint, and it has significant impacts on how things get done. Using the monthly burn pattern is a powerful building block for building budgets. You can use it to help figure out affordable teams and project durations. Sometimes time is the main constraint. Sometimes budget is the main constraint. In any event, you can simplify your budget management by thinking in terms of a monthly burn rate.