HKSM

A practical plan that specifies where project funds will come from, when they will be available, and any conditions for release. It aligns financing with the cost baseline and schedule to prevent cash-driven delays.

Key Points

• Formal output of planning that documents sources of funds, release timing, tranches, and conditions.
• Aligns cash availability with the cost baseline, cash flow forecast, and key milestones.
• Defines governance for funding approvals, drawdown triggers, and monitoring and reporting.
• Used to coordinate procurement payments, vendor financing, reserve usage, and change control.

Purpose

Ensure the project has the right amount of money at the right time to execute planned work without interruption.

Provide transparency for sponsors and finance on how investments will be staged, controlled, and measured for value.

How to Create

• Start with the approved cost baseline and time-phased funding requirements from the cash flow forecast.
• Identify potential sources: internal capital, operating budget, program funds, debt, grants, vendor or customer co-funding.
• Select a funding structure: full upfront, milestone-based tranches, periodic (e.g., quarterly), usage-based draws, or mixed.
• Map a release schedule tied to milestones, deliverables, or performance conditions (e.g., gate approvals, KPIs).
• Define conditions and constraints: spending limits, caps per period, currency, tax, compliance, and audit expectations.
• Describe how contingency and management reserves will be accessed and replenished.
• Set approval workflow: roles, thresholds, documentation required, and lead times for funding requests.
• Include monitoring approach: variance thresholds, reporting cadence, and escalation paths for shortfalls.
• Perform sensitivity and scenario analysis to test funding under delays, cost overruns, or scope changes.
• Document assumptions, dependencies, and risks related to financing and cash timing.

How to Use

• Integrate with the schedule, procurement plan, and vendor payment terms to time cash needs accurately.
• Trigger tranche requests ahead of lead times to avoid work stoppages and late fees.
• Track actual drawdowns versus planned releases; investigate and act on significant variances.
• Apply governance rules for reserve usage and funding changes through the change control process.
• Coordinate with contracts to align retainage, advances, milestone payments, and financing clauses.
• Communicate funding status and forecasts to sponsors, finance, and the PMO during regular reviews.

Ownership & Update Cadence

• Owner: Project manager and finance partner co-author; sponsor approves and owns funding commitments.
• Baseline at initial financial planning; update at phase gates, major change requests, or rebaselining.
• Review at least quarterly (monthly on cash-intensive projects) and when risks or delays affect cash timing.

Example

A $3.2M data center migration funded via staged releases tied to milestones and conditions.

• Sources: $2.5M capital budget, $0.5M vendor financing, $0.2M contingency reserve accessible on approval.
• Release schedule: $800k at design approval, $1.2M at hardware PO, $700k at site readiness, $300k at go-live acceptance.
• Conditions: Each tranche requires gate approval and forecast-to-complete within ±10% of baseline.
• Governance: Sponsor approval over $250k changes; reserve draws require risk ID and mitigation plan.
• Monitoring: Monthly cash flow report comparing planned versus actual drawdowns; 30-day lead time for funding requests.

PMP Example Question

A project has an approved cost baseline of $4.5M. The sponsor will release funds quarterly and only after meeting milestone criteria. What should the project manager prepare to ensure money is available when needed?

1. Update the procurement management plan with new vendor payment terms.
2. Develop a funding strategy detailing sources, release timing, conditions, and approval gates.
3. Add additional contingency reserves to the cost baseline to cover timing gaps.
4. Escalate to the steering committee to request full funding upfront.

Correct Answer: B — Develop a funding strategy detailing sources, release timing, conditions, and approval gates.

Explanation: The funding strategy is the planning output that aligns cash availability with the baseline and milestones. It specifies tranches and conditions so funds are released in time. The other options do not address end-to-end financing and governance.