The value of project management is in its ability to protect investments and increase the probability of successful project outcomes—both of which make managing costs a critical function. Using the correct cost-visualization tools can enable valuable, robust, and mature conversations with business stakeholders and sponsors at the point of need.
So, what kind of data visualization is best suited to engage business stakeholders and sponsors? Though the standard cumulative revenue and cost-tracking visualization techniques are important to our business accounting, they fall short of delivering a customer-centric point of view that facilitates a collaborative discussion in a fast-moving environment.
A burndown chart is a much more effective tool that invites discussion, offers insights, illustrates decision impact, promotes confidence, and can effectively position everyone involved for success.
The History of the Burndown Chart
Scrum, commonly used in agile software development, revolutionized software development by prioritizing iterative development, regular retrospectives, and continuous improvement. As teams embraced these principles, they needed a visual representation to track progress and forecast project completion. The burndown chart became a popular tool in agile software development. The concept is the same whether looking at the burndown of points in a sprint or the cost associated with the effort: a burndown chart depicts the amount invested and the total investment remaining against a defined time expectation.
The burndown chart’s simplicity and effectiveness soon caught the attention of project managers (PMs) across various industries. Many have found applications for burndown charts in marketing campaigns, product launches, construction projects, and more. Regardless of industry or project purpose, the underlying principles remain consistent: visualize investment against time, stay on track, and deliver value.
Using Burndown Charts for Cost Management
A burndown chart essentially comprises two primary lines: the “Budget” line and the “Actual” line, as seen in the example below. The Budget line represents the projected completion rate based on the cost baseline. It follows a downward slope from the project’s total value to zero over its duration.
On the other hand, the Actual line portrays the actual costs incurred. It illustrates the amount invested against the time elapsed. Ideally, the Actual line should mirror the Budget line, indicating that actual costs align with planned costs. Deviations between the two lines provide valuable insights into project cost performance.
What the Cost Burndown Chart Reveals
A burndown chart offers PMs and sponsors an abundance of information that can steer project success:
- Velocity and resource utilization: The Actual line’s steepness reflects the work velocity completed during specific time frames. When the Actual line drops sharply, it indicates a higher resource utilization or more costs used during that period than were planned. Conversely, a more gradual Actual line slope indicates less costs consumed. This could happen because fewer resources than planned were involved during this period.
- Early detection of issues: Any discrepancies between the Budget and Actual lines serve as early warning signals, allowing PMs to promptly identify potential issues and action plans.
- Predictive insights: By extrapolating current trends, PMs and sponsors can anticipate whether the project will be completed on time and within budget. This foresight can promote important discussions about risk-mitigation protocols, the ability to potentially redirect the product requirement volume, and the potential need for increased funds with enough time to line up more funding while maintaining project continuity.
For example, the following chart shows a snapshot of this project’s actual performance as of April. We can tell by the Actual line that the project used fewer financial resources than planned in January and February.
The sharp drop in the Actual line of the graph indicates that, in March and April, resources were used faster than planned; the velocity of cost incurred accelerated in March and April. We can tell by looking at the Actual line that our increase exceeded the planned spending for these two months.
We can also see that March and April spending exceeded the underspend in January and February. The PM can conclude that if we were to spend at the planned rate—which is represented by the slope of the Budget line—the project would run out of funds before the target contract ends.
This triggers actions to investigate what caused this increased spending and to determine whether overspending was intentional or circumstantial. If intentional, things are on track, and at some point in the future, we should see a slowdown in resource spending, which would be indicated through the Actual line leveling off.
If the spending rate in March and April was not intentional, then the PM needs to determine what caused the accelerated spending and create a plan to correct it. Once the cause of the variance (intentional or circumstantial) from the plan is understood, the conversation with the sponsor can occur. The PM can point to variances in the burndown chart to facilitate appropriate conversations about redirecting and reconciling the plan.
Enhancing Stakeholder Engagement Through Burndown Charts
Burndown charts provide a potent psychological impact because they show available funds invested reducing over time. This serves as a forcing function between the PM and the sponsor to discuss the value being delivered against the investment made into the project. The transparency of the burndown chart fosters confidence and trust.
The demonstrated impact of sharing a burndown chart with the project sponsor includes:
- Visibility that breeds confidence: Regular updates through a monthly or even weekly burndown chart build trust between the PM and the sponsor. Having conversations around the investment that is actively being made enables discussions about project health and any necessary adjustments that could create further alignment with project objectives.
- Partnership that fosters shared ownership: These discussions allow all stakeholders, including the PM, to candidly address the project at hand and the ecosystem in which it lives. This partnership enables a broader perspective where the project’s needs stay at the forefront. Further, this format allows the PM to invite the stakeholders to partner in the decision-making process, which ensures that customer value is always delivered, even in an unpredictable environment. It embraces and enables agility.
- Driving conversations and collaboration: The burndown chart catalyzes changes in stakeholder discussions. Instead of conversations fixated on budget constraints, they shift to conversations about the impact of changing business priorities and how to handle remaining funds. This conversation shift to adjusting priorities and optimizing resource allocation is powerful because it makes PMs and sponsors focus on the value created by the funds already invested.
- Actionable decision-making: The burndown chart is rich with data and is easily accessible and actionable, which supports data-driven decisions for the sponsor and stakeholders and puts the PM in a good position to discuss value. As programs compete for funding during budget cycles, the data provided will support an informed decision-making process for leadership.
Harnessing the Power of Burndown Charts
By embracing the burndown chart, PMs can develop deeper partnerships with sponsors and stakeholders to drive data-driven decision-making. It changes the stakeholder conversation to one focused on delivering value and remaining responsive to changes.
The burndown chart provides a level of predictability, control, and confidence because the stakeholders can visualize the data, participate in the decision-making process, and see the impact of their decisions.