Efficient Project Financial Management |Budget, Cost, Margin
Efficient Project Financial Management | Managing Project Budget, Cost, Expenses, Billing and Margin
How do you define success of a project? What perspective will you use – a customer’s perspective who has been delivered quality outcome or a vendor’s perspective who has delivered project on time and within budget? Or a holistic view where customer evaluates what difference has the project made to its organization (revenue, cost saving, resource utilization, etc). Yes, time is important factor in deciding whether project is successful or not. The reality is – the financial numbers matter the most. Typically the bottom-line decides whether the project has been successful for company or not.
One cannot measure performance of projects or your department or your organization unless you have specific metrics to refer. Most projects driven organizations, before kicking off projects, make certain financial provisions called project budgeting. The project budget is part of departmental budget, which in turn is constituent of (program budget) or indirectly part of organization wide financial provisions.
Because most projects are tracked for budget, estimated cost, actual cost and billing; there is implied need of software to make things easier for project manager and team members. The project management software like ZilicusPM allows project manager to manage financial status of projects. Let’s look at what all financial aspect of project, project manager can control.
1. Project Budget
As department level budget is allocated and further, the provision made at project level; project manager can start planning project activities with reference to project budget. In fact, it is always other way round; based on project plan (estimated cost), project manager demand for project budget and then the provision is made.
2. Estimated project cost at task level and aggregate level
As project manager breaks down project deliverable into finite tasks, he/she knows what kind of resources are required, what will be typical cost can be expected. As the estimation at task level, consider resources and fixed and other cost are determined, project manager know what will be the estimated cost the project will incur.
The estimated project cost can be different than project budget however as I mentioned earlier, project budget is allocated knowing estimated project cost. Since project may face change requests, schedule changes, resources change and such factors affect the estimated cost of the project. And these may overshoot the estimated project cost over budget.
3. Actual project cost at task level and aggregate level
Project team then starts working on project and the project is delivered in stages (WBS). Project team members enter timesheet details using timesheet tracking software for the work they have done for project tasks. Depending on resource type, cost and number of hours he/she has entered in timesheet software, it drives the actual cost for task and in turn the actual cost of project.
There are also project expenses recorded against tasks. The project expense management software makes it easier for project team members to record expenses against tasks – specifying dates, billability and amount, etc. details.
4. Project revenue at task level and at aggregate level
Typically projects billed to customer in following manner
– At fixed price
– At actual resource rate
– At fixed hourly rate
And depending on above scheme, the information provided by project staff, the billability of the project is calculated and presented to customer as invoice. Many companies use timesheet software to calculate project billability because, in case of ‘At actual resource rate’ type of billing methodology, timesheet software allows them to provide breakup of activities staff member have worked in a given project.
One can also estimate project revenue based on the project schedule and resource billing rates.
5. Project financial reports and dashboard | Project Variance (Budget Vs Estimated Cost Vs Actual Cost Vs Billing)
Finally all financial information can be presented in the reports and dashboard form. Such presentation of data gives clear picture to project and portfolio manager about financial status of individual project and portfolio of projects – knowing whether a given project is overshooting budget or making enough margin or not. The project reports and dashboard help project manager to make prudent financial decisions during the course of project planning and execution.
The question one may ask is – why online project management software to manage project budget, expenses, cost and revenue? Because it offers a central place for all team members to submit project financial- timesheet and expenses details, and project manager can easily review all of these before approving; make necessary correction and re-approve these to reflect correct financial status of project. You can track project budget, cost and revenue almost real time; It helps you to make righteous decisions for projects and your organization.
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