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.
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'.
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
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.
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
We'll kick it off with a definition 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.
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.
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.
As you master the processes, you establish the groundwork for monitoring project management KPIs--the cornerstone for conducting essential profitability and rate realisation analyses.
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!
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:
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
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...
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.