Insight  |  Jan 18, 2018  |  Arora

The Financials of Project Management: A Word from Our CFO

  • PM_financials

By Anthony J. Vitullo, CPA, CGMA

Congratulations! A project has been awarded to your team and the work of the Project Manager (PM) now begins in earnest. The PM prepares to manage the team, oversee the design process, affirm that all milestones are met, and ensure that an excellent product is produced. For the PM to successfully accomplish these goals, the project financials must be addressed early and managed methodically throughout the entire project life cycle.

Once the project begins, financial project management starts with a review of time and expenses spent on the project. How often this is analyzed will depend on the duration of the project, but it should be done at least monthly, and compared to the work plan and the percent of the work plan that is deemed complete at that point. The importance of this cannot be overemphasized. We all hope that our projects run smoothly and according to budget, but Mr. Murphy and his Law are always active, and something will usually throw things off schedule. Catching time and/or expense overruns on a project is critical in the initial stages as it will wreak havoc on the work plan. These overruns can be due to inefficient staff, poor budgeting, or an inefficient client.

  1. Inefficient staff or inefficient use of staff must be recognized, diagnosed as to why, and corrected immediately, or as the PM you will have to answer to why the project overran the budget and why you did not correct it. Also, the firm will lose money on the project, either in real dollars or in profit opportunity lost, neither of which is acceptable.
  2. Poor budgeting is more difficult to correct. If the project was incorrectly budgeted at the onset, correcting it must be done by finding more efficient ways to do the work without shortchanging the project or the client. Very difficult, but not impossible.
  3. Client inefficiency manifests itself in a variety of ways. It could be seen in a client that is slow to make decisions and is holding up the work effort, thereby crunching the project deadlines. The other side of that is the client who is changing prior design decisions and wants to add or change things in the design scope. Both scenarios flag “additional services” discussions with the client and contribute greatly to “scope creep.”

The additional services topic could be the subject of a blog in itself. Briefly, the PM should be sure of the following:

  1. What is considered outside of the original proposed and accepted scope, and therefore are additional services, should be covered in the contract.
  2. What changes are allowed or not in the original scope must also be contained in the original signed contract.
  3. The rates for additional services must be spelled out in the contract.
  4. When issues arise that will generate additional services, communication with the client early is necessary; this is no time to be shy or afraid to speak with the client about job progress. A PM is not doing the client, or the firm, any favors by delaying the inevitable discussion. In fact, most clients will have more respect for the PM and the firm for a discussion that happens earlier, rather than later. Meeting Minutes with the client should be copiously kept, assuring that there is documentation available for these later discussions regarding additional services.

Finally, at the close of the project management cycle, there should be a Project Closeout and Post-Mortem session. This will mark a formal close to the project and ensure that all files are properly archived. In addition, a discussion of what went right, what went wrong, and lessons learned from the bumps in the road can significantly support the planning and running of future projects.

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