What is a burn rate in project management?

In Agile project environments, burn rate can be calculated per sprint or iteration, while in traditional project management, it is often tracked on a monthly basis. In addition to information on spending, burn rate analysis can reveal important patterns about project health. For example, a steadily increasing burn rate might indicate scope creep or inefficiencies, while a burn rate that is significantly below projections could suggest resource underutilization or unrealistic estimates. Project managers who understand and observe their burn rate can control costs, maintain stakeholder confidence, and ensure that financial resources align with project progress.

Burn rate and run rate are both financial metrics used in project and business management that measure different aspects of financial performance. Burn rate measures resource consumption over a specific past period. Run rate, on the other hand, is a forward-looking projection that extrapolates current performance into future periods.

Burn rate is a backward-looking metric that helps managers understand if they are consuming resources faster or slower than planned. This is especially valuable for projects with fixed budgets or startups with limited funding. Burn rate answers the question "How quickly are we using our resources?" With run rate, managers take current revenue or operational metrics from a shorter timeframe and expand them to estimate what annual performance would look like if current conditions continued unchanged. Run rate answers the question "What would our annual performance look like based on current results?" to support forecasting and future planning. In project management, both of these metrics are essential to efficient resource management practices.

To calculate burn rate for a project, teams need to track actual expenditures over time and compare them against the baseline budget. The basic formula is:

To ensure the calculation is accurate:

1. Determine the time period for measurement (weekly, monthly, quarterly).
2. Sum all expenses incurred during that period (labor costs, materials, equipment, services).
3. Divide the total expenses by the number of time units in your period.
4. Compare the result with your planned burn rate from the project budget.
5. Calculate variance between actual and planned burn rates as a percentage.

It is also useful to track burn rate across multiple periods to identify trends in resource consumption and to calculate both gross burn rate (all expenses) and net burn rate (expenses minus any revenue or value generated). Teams should aim for a good burn rate result that shows alignment between actual spending and planned spending. Still, "good" depends on a project's individual context. A project that spends according to plan but delivers less than expected has a more problematic burn rate than one that slightly exceeds budget while delivering significant business benefits. The ideal burn rate maintains a consistent correlation between funds expended and value produced throughout the project lifecycle. Burn rate should always be evaluated within the context of project progress and value delivery.

Enji monitors burn rate with features that provide real-time analysis of resource use throughout a project, from individual team members to assets. Enji helps teams understand how much they are spending in the present and to project expenses into the future.

Enji focuses on providing the data managers and stakeholders need to keep their project budgets lean and focused on delivering better value.