Burn Rate

What is Your Burn Rate?

Project management is full of confusing and esoteric terms. From time to time ProjectPro eNews will discuss the meaning and implications of such terms.

Burn rate is an indicator used to show how the project is performing with regard to meeting the budget. The burn rate of the project is simply the rate at which the project budget is being spent. Faster than the plan? Slower than the plan? Or exactly to plan?

The burn rate is the inverse of the Cost Performance Index (CPI). The CPI is calculated by dividing the budgeted cost of the work performed to date (also called the Earned Value or EV) by the actual cost of the work performed to date (also called the Actual Cost or AC). Therefore the CPI is EV/AC.

So the formula for calculating the burn rate becomes: Burn Rate = 1/CPI.

  • A burn rate of greater than one indicates your project is consuming budget faster than planned and will exhaust the budget before all the work is completed.
  • A burn rate equal to one indicates your project is consuming budget as planned and will completed on budget.
  • A burn rate of less than one indicates your project is consuming budget slower than planned and will completed within the budget

Note that the effort remaining increased on day 5. This could be the result of a scope change which added more work and consequently effort. Alternatively, it could be the result of an Estimate To Completion (ETC) recalculation to estimate how much effort is needed to complete the project. It could also be the result of rework being required to fix a problem.

 

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