Project Balance Sheet Details

The project balance sheet seeks to make a quantitative and qualitative connection between the business and the project. On the left side, the business side, is the sponsor's view of the project. The sponsor's view is conceptual and value oriented, nearly void of facts, or at least void of the facts as the project manager would understand them. Often the sponsor has no specific understanding of project management, of cost and schedule estimating for research and development, or of statistical analysis of risk, and does not seek to acquire an understanding. In system engineering parlance, the project sponsor sees the project as a "black box." However, the sponsor knows what the business requires and knows how much investment can be made toward the requirements.

The project manager has the facts about the project, even if they are only rough estimates. The project manager knows and understands the scope, even if the scope has "known unknowns" that require more investigation and definition. ^[18] We have already made the point that risk balances the facts with the concepts. However, a bridge is needed to couple unambiguously the sponsor's understanding and the project manager's understanding of the same project. That bridge between project manager and business manager is a common understanding of scope. Even with language and experience barriers, scope is the translator. The test for the project manager is then to ensure that there is good understanding of scope and then to convey the risks in business terms. This done, the project charter can be signed with expectation of good results to come.

Now what about debits and credits? Where do they come into the project balance sheet? Like the accounting equation, the project equation is not a functional equation of the form y = f(x) + c that specifies y to be functionally dependent on x. Indeed, the left and right sides are pretty much independent, just like in the financial domain. By independent, we mean that the estimates of cost and schedule done by the project manager are based on the facts developed by the project team for the work specified in the work breakdown structure (WBS). Those project team estimates are not, or should not be, dependent on the business value estimate developed by the project sponsor. However, once the charter is set, a change in one of the three elements (business value on the left side, risk or project capability on the right side) requires that another of the three elements must correspondingly change to maintain balance.

If, for instance, we continue to say debits are increases to the left and credits are increases to the right, then a debit of scope by the sponsor (that is, an increase in scope) must have a corresponding credit on the right or else balance is violated. By way of another example, if the situation were that the project manager had to credit the capability, ^[19] and no debit was available from the sponsor, then the required debit must go to risk in order to restore balance.

But is balance really all that important? Yes. The interpretation of imbalance is that there is not a meeting of the minds regarding the value demanded (left side) and the likelihood of successful delivery (right side). Consequently, the project may not be sustained, sponsor confidence in results may be challenged, and the project team may not be supported adequately during execution.