Project Management Accounting [An Overview]

 

I’m not the world’s greatest when it comes to numbers so when I started getting more involved with project financials I decided it would be a good idea to read up on the subject. I bought Project Management Accounting a few years ago now and it has become my go to book for understanding project budgets. It’s by Kevin R. Callahan, Gary S. Stetz and Lynne M. Brooks. My copy actually still looks pretty new, as I don’t get it out to read very often – it’s the kind of book that is useful at certain points in a project and then goes back on the shelf.

Here are my takeaways from it.

Financial understanding brings seniority and gravity

“Senior project managers have their roots in many different areas of expertise, but the great majority do not come of out finance or accounting,” write the authors. That’s true, and it means that for many of us there is a huge hole in our knowledge of how the mechanics work around paying for projects and accounting for the returns.

The authors think that once you’ve gained experience and proficiency in project management skills, you’ll benefit from learning more about the numbers. They write:

“After years of managing larger and more complex projects, senior project managers often aspire to making greater contributions to their organisations. One way to do this is by gaining expertise in fiancé and accounting, thereby enabling them to view the organisation from a different perspective and to make a greater contribution to it.”

I agree: I think it’s hard to really make a strategic difference, even on smaller projects, unless you understand the fundamentals of how cash moves around the business and how your company makes money. It’s one of the reasons that I’ve tailored this blog to be mainly about the financial topics relating to project management. If we want to – as an industry, as a profession – move the perception of project management to the next level then we have to be taken seriously and be seen to operate a senior levels. Seniority in many companies often goes hand in hand with the ability to handle budgets.

Get involved in the financial decisions

I particularly like the fact that it advocates for project managers to get involved in financial decisions. The authors write:

“[Early during the project’s conception], often project managers are not part of the decision-making process. In many cases, it is because the project manager is not believed to have the business experience necessary to make such decisions. However, using the project management and business tools [discussed in the book] a project manager can guide the decision process to avoid making costly mistakes. It will not always be easy for project managers to have input into important financial decisions, but without some knowledge of how finance and strategy work, they will have no input at all.”

I think this is a really important point, because the shift in project management is towards project managers taking on a greater responsibility for leadership in the early stages. It’s no longer just a delivery job (thankfully) and includes elements of business change and strategy. So you need to have the vocabulary and skills to take part in discussions at that level.

Boost your network

One of the things discussed in Chapter 6 is the role of the financial manager. Do you know who the financial manager is for your project? It’s not an accountant. The authors point out that the role of finance is to “develop benchmarks as a guide to managers”.

A financial manager is someone who can create a good balance sheet, the optimal one for the company at this point in time. That can involve advising on which projects to take on, which to stop and providing input into business cases. They also work on financial documentation such as budgets, and income and balance sheet statements.

Your project, especially if it is sizeable, will need someone in this financial management role as well as potentially another person to handle the invoices and make payments from the bank. Those latter functions are normally handled by the Accounts Payable team and you’ll have standard corporate processes for doing those. Advising you on your project takes a trusted financial ‘adviser’ in an internal role, so build your network and consult the company org charts so you know who to turn to.

In summary

I’ve only pulled out a few key points from this book and added my thoughts but I hope you can see that it’s a useful shelf reference for project managers looking to move into more senior positions or those generally wanting to understand more about how money moves around in the company. I’d recommend it.

Book referred to in this article: Project Management Accounting, Kevin R. Callahan,  Gary S. Stetz and Lynne M. Brooks. Wiley, 2007. The image is of the 2nd edition. I am quoting from my copy, which is the first edition.