Six Questions on the Path to Financially Justified Projects: Developing Cash Flow Models

  Cost Management   Estimating   Knowledge Shelf  

Projects are financial and strategic investments initiated to improve shareholder value and can only be successful when they deliver their expected business returns. Senior leaders, the executives above the project level realize this, think in these business terms, and crave financial information for decision purposes. To be a strategic value-enabler and profit creator a project manager must be capable of conveying the big picture of their projects in business and financial terms. Developing these skills will enhance your ability to manage the delivery of value.

Let’s begin with a hypothetical business scenario. You’re working on a big project. It’s one-third complete. The company hires a new CFO, and in an effort to get up to speed quickly, a meeting is called. You are asked to review the potential project results because the investment required for this particular project is quite large. Are you prepared to discuss your project’s ROI financial measurements (e.g., ROI, IRR, NPV, Payback) or will you freeze like a deer in headlights? Did you prepare a cash flow model that summarizes your project’s financial value to the organization, financial projections that your superiors are likely to take seriously? Without this knowledge, how do you really know if you are using corporate funds and resources wisely?

Project professionals are quite …

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