« Vendor Management - Project Managers Get a C-minus
Ten Ways to Ensure Project Failure »

Control Factors in Project Management - Money

March 9, 2010 | Author: PM Hut | Filed under: Cost Management, Program Management

Control Factors in Project Management - Money (#2 in the series Coordination of Projects in Project Management)
By Wouter Baars

The evaluation of financial matters by a programme manager involves the following issues:

  • Is the project as a whole, and the following phase in particular, adequately financed?
  • What are the possible financial risks of the project? Should a go/no-go moment be arranged?
  • What is the liquidity prognosis for the project? Would a problem arise if the income from a project were to arrive later than the expenditures (e.g. if the subsidy is paid only after the completion of a lengthy project)?

By adding all of the budgets together, a programme manager can compile a yearly schedule for the projects. In this way, the programme manager ensures that there will be sufficient turnover from the projects to fund the project workers. Insufficient turnover necessitates the solicitation of new projects. If there is too much turnover, extra personnel should be hired and/or projects must be postponed or even cancelled.

This process provides an idea of whether the projects as a whole are sufficiently profitable financially. For example, consider an organisation that is conducting ten projects of two thousand hours each. The organisation has twenty FTE1 of project employees in service. We will see later that almost all of the hours of the workers are divided. Assume that the annual salary costs for these twenty FTE amount to one million euros. Should the projects generate less than one million euros (in subsidies, internal financing, commercial proceeds), problem could arise. Fee adjustments or the cancellation of unprofitable projects may be necessary. In projects, the actual amounts that are needed can vary greatly from those that are estimated in the budget, particularly if the project is subsidised. To compensate for this type of uncertainty, a programme manager should reserve an amount to accommodate unexpected disappointments in one or more projects.

Budgets are also sometimes too broad. In such cases, it is important for project leaders to be prepared to give up some part of their budgets. Otherwise, any projects that did not remain strictly within their own budgets would be too expensive. If projects that are estimated too high assign part of their budgets to projects that were initially estimated too low, the organisation should finish (reasonably) even.

What should an organisation do if it has received a subsidy of €100,000 for a project that turns out to need only €80,000? The money will surely be spent; there are many other uses for that amount of money. For example, another project received €150,000 but actually needed €200,000. Fortunately, it is not possible to determine exactly what the programmers did in the hours that they charged to the projects. With a little re-arranging, everything will line up neatly again.

It is logical for organisations act in this way with their subsidised projects; they could hardly do otherwise. This is a direct result of the fact that organisations must compile a total budget for each application, from which they will no longer be allowed to deviate. One consequence of this situation is that the (financial) project statements from subsidised projects must be taken with a grain of salt. From the perspective of project management, it is unfortunate, as it makes it difficult to determine the exact costs of particular projects. It also contributes nothing in the area of accountability for the use of subsidy money.

1: FTE stands for Full-Time Equivalent

Wouter Baars has a Master of Science degree in Industrial Engineering and Management Science. He has been a project manager for several years for The European commission, Waag Society, KPN (Dutch telecom provider) and many smaller organizations. He is specialized in creative projects such as serious game development, e-learning and software development. Currently he is teaching project management and coaching organizations that are working on their project management. More info on his work: www.projectmanagement-training.net.

Originally published by DANS – Data Archiving and Networked Services - The Hague

Share this article:
  • Digg
  • del.icio.us
  • Facebook
  • Google
  • blogmarks
  • LinkedIn
  • Reddit
  • StumbleUpon
  • TwitThis
  • Yahoo! Buzz

This entry was posted on Tuesday, March 9th, 2010 and is filed under Cost Management, Program Management. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

No comments yet.

feel free to leave a comment

Comment Guidelines: Basic XHTML is allowed (a href, strong, em, code). All line breaks and paragraphs are automatically generated. Off-topic or inappropriate comments will be edited or deleted. Email addresses will never be published. Keep it PG-13 people!

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

All fields marked with " * " are required.

Project Management Categories