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Accounting cycles rarely match up with project lifecycles and that is a fundamental difficulty for project-based organisations and project teams. It is particularly difficult at times like now when project managers have to deal with their Finance departments working on half-year forecasts.
What is half-year forecasting?
Half-year forecasting is the process that Finance departments use to look at what the company/division/department has spent so far through the year. They compare this to what was budgeted, and use these numbers to predict what the full year financial forecast is likely to be. Sound familiar? It’s similar to processes used in Earned Value.
Half-year forecasting is simply a method of finding out if the company is on track to hit its financial targets. If the organisation has spent a lot more money than planned (or a lot less), it is likely that the overall budgets have not been set effectively. Half-year forecasting is the opportunity to review the figures and make changes to the budgets to ensure the company hits its targets.
When do you do half-year forecasting?
Er… at the half-way point through the year. It is only half-year forecasting time now if your financial year runs from January to December. Some companies have financial years that run from January to December and cover the same time period as a calendar year. Some companies don't.
If your company doesn't have a financial year that coincides with a calendar year the other options are:
- A financial year that coincides with the tax year, and starts and ends in April.
- A financial year that ends in July.
- Some other arrangement.
If your company falls into the ‘some other arrangement’ box, you might be able to find someone to explain to you why your company manages its financial year the way it does, but frankly it doesn’t much matter when the year starts and ends as long as you know. In many cases the reasons why your financial year runs the way it does will be lost in the mist of times.
How does this affect my projects?
Your project could be at any point in its lifecycle at the point that half-year forecasting is taking place. During the forecasting process, the company is looking at how much it has spent and what it has left to spend from the budget for the remainder of the year. You may get asked to provide project budget information to feed into this forecasting process.
What, even my small project?
No, maybe not small projects. Half-year forecasting tends to deal with company profits and so the numbers are quite big. If your small project has a tiny budget then it probably won’t have an impact on the figures. Forecasting is more likely to affect a big projects running over many years or programmes.
What do I have to do?
If you use Earned Value then sending the Finance team the EV figures may be all that they need. If you don't use EV, then compare what you have spent to what you have forecast for the project. Providing the Finance department with the estimate to complete will also be useful for them as they can use this to refine the forecast for the entire company for the remainder of the year.
If the Finance department are interested in your project budget numbers to the half-year forecasting process then they will ask you for input. The only other point I’d make is that sometimes these requests can come at the last moment, so make sure your budget tracking is up to date!
Image: renjith krishnan / FreeDigitalPhotos.net
Posted on: July 10, 2011 07:07 AM |
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