6 tips for improving project financial management
[Post Updated – December 2021]
If there’s one thing we’ve learned during the COVID-19 outbreak, it’s the importance of project financial management. In fact, Sage Intacct partner, BigTimeSoftware, surveyed hundreds of professional services firms and 59% of respondents predicted COVID will have a 15%+ impact on revenue.
In what seemed like an instant, everyone needed to assess the exact status of their projects both from a financial standpoint and delivery. It can be an eye-opening experience if it takes days or even weeks to get a reliable picture. Many found that there were significant issues when considering what’s been billed, what the current cost is and what’s been delivered. That’s understandable for the time before COVID-19, when projects were plentiful, and companies relaxed enforcement of best practices.
Now that the dust has started to settle, it’s a good time to revisit some of those best practices you expect from your project managers, or maybe take the time to train on some new ones. Here are 6 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
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. If it’s just project profit, make sure they understand how that is calculated (is cost recalculated for salaried employees that work over 40 hours, or do you use a standard rate, etc.). If you use a multiplier or other KPI, it needs to be something they know and can see easily on their own.
Having only one metric for your project manager to reference can limit their ability to achieve all of your financial goals (if you’re only looking at revenue you may end up with low profit, if you only look at profit you may miss your revenue target). You also don’t want to overwhelm your managers with too many metrics. Most organizations 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 regular review of your company and project metrics a habit
Once you have agreed on the project financial data, you want your project managers looking at them regularly. It’s not enough just to encourage it, you need to make it an institutional habit. A best practice to reinforce the importance of those metrics is to focus on them in your project review meetings.
Each time you meet, start off with a review of the data before diving into the qualitative discussions. This will help you maintain consistency before you let deep dive project conversations take up all of your meeting time. 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 fires to put out. Getting them in the habit of starting their day by looking at these reports is essential. It only takes one large vendor invoice or someone with a high billing rate booking a bunch of time to put a project sideways, so daily review is important.
3. Lead by example on daily time and AP entry.
The reports and dashboards you want your project managers reviewing is only as good as the data behind them. If your team waits until the end of the week to capture time, complete timesheets, or enter vendor invoices, then your project manager is flying blind all week. Daily time entry is a constant struggle. Use everything you have to get it done; reports, emails, incentives, anything. Often times, those with the highest billing rates are the worst offenders.
This needs to be driven TOP DOWN. Senior leaders need to be setting the example, not being the exception. For AP entry, try to automate as much as you can with integration to your primary vendors or your bank. You may already sync with your bank, but you still need to quickly allocate your bank transactions to your projects.
4. Capture percent complete on every project
This is different from percent billed. You should track your project managers assessment of the project delivery completion on a weekly basis. Most companies don’t track this due to busy schedules and an over reliance on what you’ve billed as your barometer for how much you’ve done. With accurate percent complete data, you can reconcile that with the amount you’ve billed and your project schedule to see if you are tracking on time and on budget (discussed more below).
Working with your project managers on understanding the importance of this number, will help them level out the pace of project completion and reduce the common practice of trying to complete 80% of the work with the remaining 20% of the budget. Project managers always have the tendency 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 the big rain makers get away with more because, well, they’re the rain makers. The problem is it sets a bad precedent for the other project managers. In times like this, everyone needs to play by the rules. It’s also an opportunity for those high performers to show maybe younger project managers, that by following best practices you can achieve better results. Some organizations create mentorship programs for high performers to teach others. A mentorship program can not only teach best practices to less experienced project managers, it can also help keep those high performers on track. This goes back to the idea of top down management. It’s important to set the right precedent and show your team that success is earned through hard work and disciplined practices.
6. Push the limits of what you’re used to
This doesn’t mean make things more complicated or time consuming, but instead, use the tools at your disposal to drive improvements to project financial performance. In the above example I mentioned using percent complete to help gauge where your projects are. This is a powerful metric that can be compared to the project budget to provide your earned value.
If you’ve done any government contracting work, 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 strong resource management tool, you can also modify your teams schedule to optimize the billing rates assigned to complete the various tasks. Also, be sure to evaluate any new methods of project delivery you have instituted during the COVID-19 quarantine. You may find that customers are more open to remote engagement, and you can significantly reduce your project costs going forward.
As a general rule, you should always have standard practices around project financial management. The project manager is an obvious key role, but many companies will protect them from financial management and keep them focused on delivery. Every professional service organization is different so you will always need to adopt any best practices to what makes sense for you. Use this time to review and revise your companies project financial management.
Over the coming weeks and months as things begin to open back up, these improvements could provide a faster timeline for your business not just to get back to normal, but also to fuel your future growth. In the next few weeks, stay tuned as we discuss other best practices you can implement to ensure a faster recovery from the coronavirus crisis. Meanwhile, let us know if there are other topics you would like to address.
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