At its core, effective Financial Management is an ongoing process that features a cycle of good management habits. It means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the institution or enterprise in a consistent and responsible manner. It also means applying general management principles to the financial resources of a project.
This article outline views from experts specifying Challenges faced while managing “Project Financials”.
One of the most difficult challenges of managing project financials is controlling changes. Even though a baseline is set at the beginning of the project, inevitably a change will come into play. Established change management process must be followed for every change request. Otherwise a mismanaged change can severely jeopardize the potential success of the project. Another challenge faced during the management of project financials is aligning data from multiple systems such as resource, schedule, procurement management systems and so on. Alignment of data is a severe cause of concern specially during the integration of schedule and cost data, as different tools are used for reporting schedule and cost. An organization must use an integrated software solution with security & version control to report and analyze the cost performance data instead of relying on multiple disconnected files.
The major challenges in managing project financial are the lack of effective communication and a lack of a holistic view of the overall project. Without these, there is a very high chance of scope creep which is capable of derailing the overall effective execution of the project. This can be prevented by carrying out detailed engagement sessions with all relevant stakeholders with the aim of clearly understanding their expectations and incorporating these in the project planning phase and ultimately into the project management plan.
Also, the importance of dynamic risk assessment cannot be overemphasized. If you fail to plan, you are planning to fail.
Maria Alejandra Mc Cormick
Challenge – Purchase software licenses and hardware might turn in a nightmare if you do not know how to estimate them and the track them down. Should they be treated as expenses or capitalized costs? These costs will affect the income statement or the balance sheet. PCO will not take ownership of determining the accounting rules however the rules that business and finance assign to these costs determine how the financials will look at the end of the project (or Mid-review) and PCO does own the accuracy of the report and raise finance risks to the Project Manager. Accounting rules are a road map for choosing the proper treatment of the costs and keeping your financial statements consistent however I found that is pretty common the lack of financial knowledge across the organizations.
Tip – I recommend from Day 1 to follow these steps to ensure that all the teams are fully aligned on the proper treatment of the software and hardware costs:
- Get trained on hardware & software cost management
- Connect with both IT and business finance reps to request formal guidelines and rules
- Meet with finance team (both business and technology reps) to set the common rules and agreements to be applied to the specific project financials
- Repeat this meeting with a wider audience: IT Project Manager, cost center’s owner and IT finance teams to agree on common ground
- Finally meet with business partners (Finance, Project Manager, Delivery Manager, etc) to get full agreement. Do not forget to write a summary of the agreements and distribute minutes! This will prove that you are executing a formal agreement and decisions have been taking by the right people.
- Depending on the organizational structure, a PM or PCO may not be able to manage the financials of their projects. This task may be done by the program manager, a client manager, or someone in the organization that controls the financials. As a result, the PM or PCO won’t have a clear visual of the financials.
- Every organization has a different financial process, which can be a challenge for managing financials. Some processes are more cumbersome and lengthier than others. For example, invoices may not be sent directly to the PM or PCO, but rather to the accounting department initially. As such, the PM or PCO may not know exactly when their invoices have been received.
- In some organizations, the PM or PCO does not have the authority or ability to approve the time for project resources. Instead, a program or portfolio manager may be approving the time. As such, the PM or PCO may not know which resource is charging to the project and how much time is being charged, until after the fact.
- Depending on the organization, any project funds leftover at the end of the year may not be transferred over to the next year. As a result, the PM or PCO will need to spend all the funds in the current year or, request the funds to be transferred over to the next year (with justification), and/or request additional funding for the next year if needed (with justification).
- Getting the SME’s time so they can explain how the financials work
- Getting all on board so when you go to them with questions, they don’t think you are a nuisance
- Building a great relationship with AP as they are processing your invoices
- Have folks review your ask, and get back to you on a timely basis
- General appreciation that what you do is important – it is not just number crunching!
Challenges faces while managing “Project Financials”
- Time sensitivity: Since the project we need to prepare/ update/ estimate the project financials within a strict deadline, completing/ finalizing the financials within the stipulated time is one of the critical challenges.
- Resolving the anomalies: Sometimes there are differences between the submitted hours by the resources and the approved hours. Resolving the anomalies and reflecting on the financials require a holistic thinking process and concentration.
- Lack of historical financial documentation. When it comes time to conduct an investigation, this always consumes a lot of resources, time, money and effort to get answers. More attention required to maintain details more traceable from the get-go to help minimize the hassle in the future.
- Leaving backdated payment issue alone without getting the resolution. One day I got an email from my Allegis contact that one of the third-party vendors asked for payment for a significant amount. I conducted an extensive investigation and found out somehow during the invoice payment system change over from vendor to Allegis this payment got dropped due to computer glitch. After investigation, I found out this was a company-wide problem. I learned not to accept numbers at face value and computer systems are not perfect. At the end, we absorbed the unplanned cost and started cutting costs elsewhere.
- Consistency in project financial should play a huge part of PMO best practices and standards. A dedicated Financial Project Analyst is a “must-have” for every project team. He/she will provide guidance and support towards a consistent approach and delivery of all financial reports.
- Lack of automation in tracking all project financial data. Relying solely on Excel to track financials can be counterproductive. Using apps like Clarity PPM or another financial tracking system, this will reduce time creating multiple worksheets, plugging in data and file recovery in cases when Excel files get corrupted (this happens quite often)
- Honesty from the get-go is appreciated when program managers share their concerns about pre-existing issues in an open forum with the core project team. New PCO first join the team should not be held accountable for pre-existing issues, however as PCO can help find the fix if this is within their ability and control.