Proper management and disciple of project financials is an important aspect of project management. Along with managing the scope, timeline of a project, and following the key deliverables by team members, financial management ranks as one of the most important aspects of the project. Many projects benefit from the assistance of a Financial Analyst dedicated to updating and maintaining the project costs, project forecasting, and budgeting. However, not all projects are lucky enough to have such a dedicated resource, therefore knowing how to manage finances is important for both project managers and team members alike.
This article, “The Financial Aspects of Project Management”, outlines several key components to which attention is needed in order to maintain the project finances. The authors discuss cost concepts such as direct and indirect costs, labor rates, overhead rates, and pricing and billing rates. The importance of understanding these concepts is imperative because these costs will be charged to the project and will be important in measuring different Key Performance Indicators as the project progresses.
Accurate timekeeping is identified as one of the most important duties in managing project financials. This can not only affect the costs charged to the project but can also affect the billing rates to customers from project work. Protecting customer relationships by guaranteeing sound data and fair pricing is an important part of managing the project. The importance of this can be magnified when dealing with government projects as mistakes can result in voiding contracts and a losing lucrative government business.
Another important function identified in this article is having a good cost tracking and budgeting system to keep organized and diligent. The authors focus on two types of costs on which having a good system is helpful for managing them. These are labor costs and expense reports. The importance of labor costs is larger than just having the ability to accumulate and bill out to customers appropriately because other costs including fringe benefits can be added or allocated to base wage rates in order to have completed labor wages. Expense reports can be very tricky as often some expenses are chargeable and billable and others are not making a tracking system important to help identify potential over or undercharging of the project.
A very good suggestion coming from this article for managing project financials is setting project spend milestones. This allows the project manager to have a benchmark to compare to as the project progresses so they can understand how they are coming along relative to budget, and if additional approvals might be needed ahead in the project for unplanned spending or overage which was unidentified during the project planning phase. This often happens as it is difficult to be able to anticipate and plan for every cost which will come through.
Overall, this article “Financial Aspect of Project Management” is a very good guide for the non-finance manager to help get organized and know what costs to pay attention to and how they might affect the project. Unfortunately, financial management is not easy and if it cannot be assigned to a dedicated specialist in the area, project managers must be able to step up and navigate through the financial flows of project costs. Staying on top of these using systems and milestones can really make a difference as the project progresses, allowing the manager to have more complete control of their project.