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Keep Project Finance on Your Radar Screen

March 26th, 2013 · No Comments

The PMBOK Guide outlines Knowledge Areas that are specific to the project itself – once the project has been justified and selected. However, strong and effective project management, in my opinion, bridges into the area of .

Any project needs to fit the organization’s strategy, and otherwise it does not belong in the organization’s project portfolio. But, assuming there is a strategic fit, project finance comes into play.

There are 5 key project management activities that are closely related to finance and accounting that are important to project success:

  1. Business Case - There is a well defined business case for the project, and it includes financial parameters. This means it outlines how the project will effect the organization’s financial performance – in the short run, through expenditures on the project, and in the long run through impact on operations.
  2. Financial Feasibility - The project must be affordable. Since projects typically involve spending money up front for a return later, proper financing must be in place and the timing of expenditures and returns must line up to create a positive cash flow.
  3. Budget, Costs, and Benefits - Expectations need to be set up front and incorporated in the project plan. This will be the foundation for project control.
  4. Project Financial Breakdown - Some common sense logic can be applied to segregate the project into financially discrete “sub-projects” that can either be managed by separate individuals who have control of the expenditures, or that share a common risk or outcome factor.
  5. Financial Reporting - This sohuld be meaningful, and map back to the objectives and expectations determined in the business case. Regular reporting should be established to quantify, monitor, and report on performance against financial risks.

Although the PMBOK Guide does not specifically cover project financial management thoroughly, any project manager will be more effective with a strong financial perspective, and by keeping financial objectives and risks in mind throughout the project.
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John Reiling, PMP, SSGB
PM Training Online
www.pmtrainingonline.com

Tags: Project Management Process