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5 min read

What is project financial management?

What is project financial management? Learn the definition and get introduced to processes, techniques, and project management KPIs that will secure healthy projects and keep you evolving as a project manager.

What is project financial management?

Understanding project financial management and project finance

As a project manager, you are a doer. You know your customers' needs and can translate them into specific tasks for your coworkers. You handle risk, whether related to delivery or finance, and you smoothly manage a project from idea to execution and handover. 

But how do you feel about project accounting, project finance and KPIs? 

For many project managers, handling and optimising the finance aspect of a project doesn't come quite as naturally as being an excellent communicator, coordinator, and motivator.

Also read: A project management tool for consultants, architects and engineers

But suppose you're a project manager in a professional services organisation, such as a management consultancy, IT consultancy, or engineering company. In that case, you must also measure, steer, and optimise the project finances.

Isn't project finance (or project accounting) the CFO's job?

Yes! The CFO is a huge part of project finance.

Still, for most of our customers, project managers play a pivotal role because they are the ones who know firsthand about deliveries (agreement, project, and tasks), payment terms and price model, hours spent so far vs. what has been delivered, and knowledge of what is left. 

That gives you, as the project manager, a unique position. And as stated by Pippi Longstocking and Spiderman: 'With great power comes great responsibility'.

Project financial management is about running projects, measuring them, and examining ways to improve them in the future.
TL flower 2021 - pink-1

The goal is to manage projects in a way that will lead to more profit. This will open the door to more projects (clients) and create more wiggle room for your company and you. 

Also read: The effective project plan - the project manager's ultimate guide

Be aware: Adding financial to the project management mix will require new ways of working

Venturing into new territory is hard! You must learn a new language, traditions, working methods, and habits. Sometimes, you even need to unlearn a thing or two. 

As a project manager, you can't escape the fact that you depend on others and have a lot of teamwork and interdependencies. This means it's not solely up to you to succeed. 

  • If you need to know the hourly rate, every project member must track time (daily preferably.)
  • If you want to budget in real-time or forecast, you need to do the budget quoting and planning upfront, and you need quality data about the project coming in real-time.
  • If you need to monitor work-in-progress you need to track all tasks from initiated to completed and everything in between. 

The above examples illustrate how companywide processes (like time tracking) are way more than nice to have. They lay the foundation for your company's possibilities for advanced project accounting and profitability

And even if it isn't easy, it is rewarding (in terms of profit, happy customers, and employees with a better work-life balance), so we hope you're ready to level up your project financial management!

Happy adventure! 🦸‍♀️

Get the e-book Level Up Your Project Financial Management Now

What you'll learn in this blog:


What is project financial management? 

We'll kick it off with a definition of project financial management.

What is project financial management?

 

Project financial management refers to the systematic approach of planning, organising, and controlling the economic aspects of a project to ensure that it stays within budget, meets set financial goals, and delivers value.

The process involves cost estimation, budgeting, financial analysis, and resource allocation, all of which aim to ensure the successful completion of projects while managing financial risks.

 

The 4 maturity levels of project financial management

In TimeLog, we utilise a 4-level model for project financial management. Each level involves specific processes and key performance indicators (KPIs) that must be implemented. As you progress through the levels, you become more advanced and mature.

The KPIs and insights from measuring them serve as the foundation for various project profitability analyses that can enhance your finances.

You can find multiple models relevant to project financial management. The model we present is based on over 20 years of experience working with professional services organisations in the Nordics.

You’re not born a perfect project manager. You evolve into one

As the saying goes: ‘Rome wasn’t built in a day’. The same applies to all the excellent project managers we meet every day in the world of consulting. 

Experience comes from years of doing, and skillsets gradually evolve through theory and practice by building on past experiences. 

With that in mind, we’d like to present the TimeLog PSA model for project financial management maturity. 

 

Project financial management maturity model

 

Need a deep dive into the maturity levels of project financial management? Jump ahead to our other blogs about project financial management, processes and KPI to measure and optimise project finances.

Project management KPIs - from sidekick to legend level

As you master the processes, you establish the groundwork for monitoring project management KPIs--the cornerstone for conducting essential profitability and rate realisation analyses.

KPIs to manage project financials 

Project management KPIs cheat sheet

 

How to optimise: The 3 techniques you need to know

1. The inside/outside exercise

The inside/outside exercise is a basic procedure where select team members, the project manager, and possibly one or two from the finance department review the completed tasks carefully by checking the comments for each task and ensuring the task is within scope.

In our experience, companies that do this exercise regularly see a profit boost of about 10% on the bottom line. It requires time, but it's valuable.

Download the e-book: Level Up Your Project Financial Management. No e-mail needed!

2. Review the project triangle

This exercise revolves around an old friend of many project managers: The project triangle

By knowing, reviewing, and adjusting the three sides of your triangle, you can better understand where, how, and what to change if your project is in trouble. 

The project triangle can help you answer questions like:

  • Can we adjust the cost and get more budget from the client?
  • Would it be possible to get more time to deliver?
  • Can we reduce or change the scope?

Using this to steer the conversation with the client can help ease the discussion (which might be difficult) if you need to align on budget and/or scope.

Also read: The project triangle: How to balance time, budget and scope

3. Being proactive with price models – the consultant’s hidden weapon

Once you establish solid processes and measure essential KPIs, your next step is to be more proactive regarding price models

You might have a preferred model in your company or a model you’d like to use more. For instance, a couple of years ago, many professional services organisations moved towards more subscriptions to secure recurring revenue.

No matter which price model(s) you’re currently using, you should know each model's benefits and drawbacks.

Who knows... Maybe a new price model will increase your project profitability.

But which price model is best for you?

It depends...

  • How good is your company at estimating the work and at budget quoting?
  • How standardised are your processes?
  • How good are you at scaling your services and conceptualising your work?

Scaling consultancy services can be a real headache, so the more you can copy, standardise, and reuse, the more you earn. 

But if you can’t standardise or scale, you should avoid a couple of price models at all costs. Learn which in our class on price models for consultants

Get the first lesson now - Join the Contract College for Consultants.

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