What does Finance know about project management?

       Being the Finance Manager for a company that does rollouts and installs of POS and Voice systems for major retailers, I really get to see the impact of project management on the companies’ bottom line, be it positive or negative.  We quote our projects between a 30 and 40 percent margin, but in 2011 we saw projects running anywhere between 65 and negative 25 percent.  Our CEO estimated that 80% of the variability was due to our own operational inefficiency, while only 20% was due to factors beyond our control.  While the wide range and inconsistencies of our project margins were troubling, the biggest issue was that overall the margins were down, with over 75% of our projects coming in under quote.  At the beginning of 2012, my boss and I were assigned to investigate what was causing the lower margins, and to come up with a plan to turn it around.  It may seem strange that Finance was assigned this task, but our CEO’s reasoning wass was that we are the ones who look at projects on a macro level and are responsible for explaining the margin variation, while every other department is only focused on their one piece (i.e Sales, Logistics, AR, etc.).

       After spending two months auditing our operations, talking with people in Sales Engineering (quoting), Sales, Operations, Logistics, and AR, we identified many problems contributing to the lower margins, but the overall problem that we identified was a lack of a clearly defined process for our projects.  While every project is different in terms of the scope of work at the site and the deliverables that the customer expects, if the administration of a project on our end is done consistently, many of the problems we run into could be eliminated. 

       Some examples of simple steps that have been skipped leading to a hit in our margins are: 1) final revisions to quotes not being authorized by the customer, 2) sales not reviewing the first invoices that are sent to the customer, 3) work orders not being created in time so that contracting has to rush to contract the labor and has to pay premium rates, 4) AR not putting job notes on the invoice, 5) Logistics shipping the wrong equipment to the site, and 6) work being approved without a customer PO.

       To control the problems and get all the departments on the same page when it comes to our project management, we developed a project checklist and worked with IT to implement this checklist into the current PM software we are using. With this checklist, every adminitration step has a due date, a responsibility assigned, and needs to be checked off before moving on. The benefits of this include increased organization, increased accountability, and better communication. Since we implemented this new checklist, we have seen an increase in our margins each month in the last 3 months, as well as increased cash flow by ensuring we are collecting the revenue quicker from our customers.  It’s amazing to see what an impact the simple step of creating a comprehensive checklist can make to the bottom line.

Here is an excel copy of out Project Accountability Checklist for anyone interested.

What do your companies do to keep projects organized on the back-end? Do you have any kind of defined project process or checklist?

Learning from Projects

Doing some further reading on project management, I stumbled across the article “Learning from Lessons Learned”, by Kam Jugdev.  I thought this was a very interesting article and excellent as the subject of this blog, because it talks about closing a project and learning from its mistakes, something we touched on in class.  The article agrees with Professor Cook’s statement, that this is something that most companies neglect to do, and something that employees resist because they would much rather move on to the next project and put the old project in their rearview mirror. I also found it interesting reading through the rest of the classes blogs that this was something I didn’t see touched on, indicating that it is still a subject that people tend to overlook.

The truth of the matter is though, that for a company going forward, closing and documenting the project is going to be the greatest source of value to the company, because it can have an impact on a wide variety of projects in the future.  Jugdev points out that knowledge based assets many times provide firms with their greatest competitive advantage, and by learning from prior projects companies are achieving economies of learning, and also creating a competitive advantage because each companies project experiences are unique and difficult to imitate. Companies that fail to properly review and document their projects are thus passing up a great chance to enhance their competitive advantage in their industry.

I work in Finance and don’t have any project management experience, but even in Finance I see the benefits of proper documentation. Whenever we have a new process or journal entry, we document it thoroughly and put it in what we refer to as our documentation “Bible”. This has been incredibly useful for us because we have had a lot of turnover in the past year, and not all duties have a proper back-up.  Without this documentation, the knowledge of many of our processes would be out the door along with the exiting employee.

My company is basically a project management company – we handle projects and rollouts for big retailers such as Wal*Mart, Kmart, and Target among others.  Documenting and closing projects has not been adopted as a common practice in our company, and the negative effects of this have been apparent over the last year.  During a big project for FSG Energy, our PM’s made the same mistake that had been made in a project for Walgreens several years ago, causing a huge loss on a $2 million project.  Of course the PM’s who worked the Walgreens project are no longer with the company, and with no documentation this situation was bound to happen again.

Jugdev’s conclusion in his article is that while it is extremely important and has a significant impact on the bottom line, a formal process for closing a project has not yet been widely adopted in industry.  My question would be, does anyone work for a company that does have a formal process for closing projects, or does anybody have an experience like the one described above where a company repeated previous mistakes because they didn’t have proper documentation?