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Project financial management: 6 best practice tips to follow

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No business could have actively prepared for coronavirus (COVID-19). The scale and impact of the outbreak took everyone by surprise.

However, some organisations have coped better than others. Indeed, when it comes to finances, those companies that enforced financial best practices may have been in a better position to deal with the initial impact than those that had not.

If you’re a CFO or in a similar leadership role, you’ll be well aware that project financial management is critically important.

Having good management habits allows the finance department to plan, organise, direct and control financial activities in a consistent, responsible and responsive manner.

Yet coronavirus and its potential corporate consequences will have demanded that you understood the exact status of your projects from both a financial and delivery standpoint.

Having a delay of days, or even weeks, will have undermined your coronavirus business strategy as you wouldn’t have been able to, in a timely manner, consider what has been billed, what the current costs were, and what had been delivered.

Here are six ways you can establish or refine your current best practices and improve your project financial management.

1. Pick the right 2-3 metrics to track

Because project managers are generally not experts at interpreting financial data, you need to ensure the metrics you use for financial project management makes sense to them.

You should have more than one metric. Having only one metric for your project manager to reference can limit their ability to achieve all of your financial goals.

For example, if you’re only looking at revenue, you may end up with a low profit, while if you only look at profit you may miss your revenue target.

Project managers need to know the key performance indicators (KPIs) and see them easily on their own.

If one of the metrics you are using for the project is profit, make sure they understand how it is calculated. For example, is it the cost recalculated for salaried employees that work more than 40 hours, or do you use a standard rate?

But you do not want to overwhelm your managers with too many metrics.

Most organisations will find that metrics such as project profit, budget vs actual, and earned value are a nice blend to give your manager a complete picture.

The overall goal is to get your managers looking at the right data, so they can make the right decisions at the right time.

2. Make a regular review of those metrics a habit

Once you’ve agreed on what comprises the project financial data, you’ll want your project managers looking at it regularly. It’s not enough just to encourage regular reviews – you need to make it an institutional habit.

It’s best practice to reinforce the importance of those metrics by focusing on them in your project review meetings. Each time you meet, start with a review of the data before diving into the qualitative discussions.

A regular review will help you maintain consistency before you focus on project conversations. Your project managers need to get in the habit of looking at their project reports or dashboards every day.

This can be a challenge for project managers that get distracted by emails or other daily tasks that require their attention.

Getting them in the habit of starting their day by looking at these project financial reports is essential. It only takes one hefty vendor invoice or someone with a high billing rate booking a lot of time to transform a project, so a daily review is essential.

3. Lead by example, on daily time and accounts payable entry

The reports and dashboards you want your project managers to review are only as good as the data behind them.

If your team waits until the end of the week to capture time or enter vendor invoices, your project manager will be flying blind all week.

Daily time entry is a constant struggle. Use everything to get it done, such as reports, emails and incentives.

Often, businesses with the highest billing rates are the worst offenders. Daily time entry needs to be driven from the top.

As a senior leader, you need to set an example, not be the exception.

For accounts payable (AP) entry, try to automate as much as you can with software integration to your primary vendors or your bank. You may already sync with your bank, but you still need to allocate your bank transactions to your projects quickly.

4. Capture percent complete on every project

Percent complete is different from percent billed. You should track your project managers’ assessment of project delivery completion weekly.

Most companies do not track percent complete due to busy schedules, and an over-reliance on what you have billed as the barometer for how much that has been done.

With accurate percent complete data, you can reconcile that with the amount you have billed and your project schedule to see if you are tracking on time and budget.

Working with your project managers on understanding the importance of percent complete will help them level out the pace of project completion. You want to avoid situations where you are completing 80% of the work with the remaining 20% of the budget.

Some project managers tend to overestimate the progress of their projects during the early stages. You can break this habit by tracking percent complete as one of your key metrics and adding it to your project review meetings.

5. Don’t let high performers break the rules

It’s easy to let people bringing in the business get away with more. But this sets a bad example. Especially in the time of coronavirus, everyone needs to play by the rules.

It’s also an opportunity for high performers to show project managers who might be more junior that by following best practices, you can achieve better results.

Some organisations create mentorship programmes for top performers to teach others. Not only can a mentor programme support less experienced project managers by teaching them best practices, it can also help to keep top performers on track.

Implement top-down management. It’s essential to set the right example and show your team that success is earned through hard work and disciplined practices.

6. Push the limits to what is possible

Pushing the limit doesn’t mean making things more complicated or time-consuming, it means using the tools at your disposal to drive improvements to project financial performance.

For example, if you’re using percent complete to help gauge where projects are, you’re using a powerful metric that can be compared to the project budget to provide earned value numbers.

If you’ve done public sector contracting work the past, you may already be aware of earned value analysis.

Tracking your projects by what you’ve spent, completed and scheduled is a forward-looking method that could help you get in front of projects that may be slipping off track.

If you have a reliable resource management tool, you can also modify your team’s schedule to optimise billing rates assigned to complete the various tasks.

Be sure to evaluate any new methods of project delivery you have instituted during the coronavirus lockdown. You may find customers are now more open to remote engagement, and you can significantly reduce your project costs going forward.