Funding

Definition

Funding is the means by which the capital required to undertake a project, programme or portfolio is secured and then made available as required.

General

Funding can be from internal or external sources or a combination of both. The scale of funding may be as simple as allocation of funds from a single departmental budget, to complex, international financing of a joint venture. In some cases the work may be expected to be self-funding, with revenues generated from earlier stages of work providing funds to deliver the later stages.

Internal funding comes from reserves already allocated to operational expenditure (OPEX) or capital expenditure (CAPEX). In the normal business planning cycle, internal funds are distributed across different subsidiary, regional or departmental budgets. A project, programme or portfolio can be funded from one or more of these budgets.

The total internal funding for organisational initiatives is limited, so conditions are typically attached to when funds can be committed. An organisation’s business planning cycle, most notably its financial year and quarters, is likely to be a major factor in determining when funds are available.

Internal funds will often come from one or more budgets, each with its own budget holder. The budget holders will contribute funds and delegate management to the sponsor. They are likely to be the eventual recipients of the benefits created by the work.

Internal funding for major, vision-led, organisational change may bypass departmental budgets and come direct from the executive board.

External funding of projects and programmes takes many forms. This includes loans in the form of overdrafts or capital, funds from shareholders through rights issues, venture capital or grants.

P3 managers and sponsors must be fully aware of the terms and conditions associated with external funding. The external funders may not be involved in the benefits of the work in any way; they may simply supply the money.

Whether internal or external, recipients of benefits or not, funders must be treated as key stakeholders and managed accordingly.

For major international initiatives other factors also come into play including credit guarantees, currency fluctuations and the complexity of international funding.

Project

Where a project is funded from departmental budgets, the sponsor of the project may well be the person who owns that budget. If a larger project spans multiple-departmental budgets, it is the sponsor’s responsibility to work with budget holders to secure funds for the project.

Where a project is performed by a contracting organisation on behalf of a client organisation, regular valuations will be performed to calculate stage payments. These payments from the client organisation are the contractor’s main source of funding. However, there will be a time delay between expenditure on resources and payment from the client. The contractor will need to secure funds to cover the cash flow difference.

In the UK public sector, there are a number of funding arrangements that have been put in place by government to form partnerships with the private sector for major projects. These include the private finance initiative (PFI), public private partnership (PPP) and build, own, operate and transfer (BOOT).

PFI is principally a procurement tool, designed to harness private sector management, expertise and resources in the delivery of public services, while reducing the impact on public sector borrowing. PPP is an ownership structure in which the government has an equity stake in the asset. BOOT can be applied to a private sector initiative as well as a public-private sectors one. In a BOOT project, one organisation is given a concession from the commissioning organisation to fund, build, operate and eventually transfer a facility.

As the close of a project is reached, the project manager must ensure that all financial commitments have been met and any unspent funds are identified to the relevant authority.

Programme

The scale of programmes means that they are very likely to either rely on multiple-internal budgets, or be directly funded from executive board level. If funds are provided from multiple-internal budgets, the sponsor must be aware of the budgeting cycle and the possibility that changes in departmental budgets can affect the funding of the programme.

Once the sponsor has secured funding for the programme, the programme management team is responsible for funding the component projects and change management activity. It must always be aware that it is really funding the delivery of benefits; the projects are simply the means of creating the outputs that enable the benefits to be realised.

The relationship between projects and benefits must be fully understood to ensure that funds are allocated and re-allocated in accordance with the benefits they create. This may involve moving funds between projects, re-scoping projects or even their cancellation in order to use funds more effectively.

Portfolio

An organisational-level portfolio is funded as part of the business planning cycle. Ideally, the objectives of the portfolio will be delivered within the same time frame. If not, the portfolio runs the risk of having its funding changed in the next business planning cycle and with it the continued funding of projects and programmes. The same principle is true of a departmental portfolio but the timescale is likely to be annual.

The way in which a portfolio is categorised, prioritised and balanced will, to a large degree, depend upon how it is funded. For example, there may be levels of uncertainty regarding future availability of funding. Long-term secured funds will be committed to the longer, high-priority programmes, while short-term funds will be matched to shorter-term projects or smaller programmes.

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