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Financial Management (Practical Project Management Series)

Financial Management (Practical Project Management Series). Normally in the contract with the client, agreements are made regarding the costs of the project. Roughly two types are being used: fixed price or hourly costs. The fixed price seems clear to me (of course the final costs maybe higher due to changes and/or additional work) but I would like to pay extra attention to the second form.

The form hourly costs doesn’t mean that you as Project Manager have a ‘carte blanche’. In this type of contract it is common that a cost estimate has been agreed. Apart from that it is agreed, as soon as additional costs are being expected the Project Manager informs the client and continues (or not) after formal approval by the client.

The Project Manager needs to apply of course financial management with both contract forms. The management of the Project Manager also wants to know what the financial status of the project is and how much profit is being made. In case we are only looking at the costs of human resources, costs regarding items such as hardware and software are not taken into account in this context, a hour registration is sufficient. Each person working within the project enters the spent hours in the central hour registration system. As Project Manager you can enter a cost rate, per person, and a commercial rate also per person. Based on this you can easily calculate the profit per person and of the entire project (eg. by means of MS Excel).

It is also handy to keep track per activity how much costs have been made and what is needed to finish the activity. When you add the budget too in the calculation you can see how much money is still available or if you have a budget overrun.

Monitoring of these items can be performed by means of MS Project or use a Project Management suite which offers much more data and reports.

Use a procedure to approve the hours spent (by eg. the Project Manager). Only after approval the hours will be booked on the project. I have experienced myself that hours were booked on my project by somebody who was not working on the project but due to using the wrong projectcode.

Finally I would like to make a remark regarding the difference between Business Management and Project Management. Business Management usually uses calendar years and a project might cross year borders.

As a Project Manager you have a budget and from the point of view of Business Management this might be split up over a budget for year 1 and another for year 2. Check this in advance with Business Management in order to prevent that you don’t have the budget released on time.

 

This is a ‘blog’ article by Lex van der Heijden regarding practical Project Management. For questions/remarks I’m available via [email protected] or via LinkedIn (nl.linkedin.com/in/lexvanderheijden/).