The Money Files

The OGC’s Portfolio, Programme and Project Office (P3O) guidance includes some information about project management maturity. Maturity is measured on a 5 point scale from Level 1 (not very mature) to Level 5 (very mature) against 7 areas – in P3O speak, ‘perspectives’.

One of the perspectives is financial management. Here’s how you should be performing at each of the different levels.

Level 1

There is a “general lack of accountability” for monitoring what project budgets are spent on. Projects have few, if any, financial controls and generally don’t have formal business cases. This means it is hard for the company to properly assess potential projects and decide where the organisation’s funds should be spent.

Level 2

There are a few more business cases around, although there is no standard template. The best business cases will explain the rationale for the project but not necessarily have a lot of financial information in. Still, it is something to go on when deciding what investment decisions to make.

Project managers are applying financial controls haphazardly, depending on their previous experience and skill level. Contingency planning and risk management are done without much consideration of costs. For example, contingency budgets are just made up, instead of being calculated on the basis of likely risk.

Level 3

There are standards for business cases and how to get business cases approved. Business cases have one owner. Project managers manage cost and expenditure – and there are corporate guidelines that show how to get these done. There will be links to the Financial department or other teams who carry out financial controls.

Level 4 (this is where you should be aiming, if you aren’t already here)

There are processes in place to enable the organisation to prioritize investment decisions. In other words, the financial information available prior to a project starting is good enough to work out whether it is a strategically important project, given the available funds and resources. Project budgets are managed well by project managers, and there are tools in place to enable tracking and comparison of financial information.

Level 5

Level 5 maturity is a significant jump up from Level 4 and really focuses on complete management and control at an organisational or portfolio level. Financial controls are integrated with the company’s general financial management plans and approaches. Estimates are accurate and produced using estimation techniques which are regularly reviewed: the information feeds into generating better estimates in the future. Most importantly, the organisation can show that project management and the projects that are delivered offer value for money.

I think most companies are a long way from Level 5, but in many cases they don’t need to operate at that level to be effective and to do a good job. Where do you think your company falls within the financial maturity model? Let us know in the comments.

As this month's theme is global projects, I thought I'd share with you this video about PRINCE2 and The PMBOK® Guide. When you work with people from different countries, especially across the Atlantic divide, you'll often find that they gravitate to one or the other way of working. As this video shows, the two approaches are equally valid and work well together. So that's one less international conflict to have to worry about when working on projects across borders.

I met Tarik at the PMI EMEA Congress this year. Tarik travelled to Dublin from Dubai, where he is Assistant PMO Director at Ajman University of Science and Technology. He is also one of the few PMI-RMP’s, as well as being a PMP.

Tarik, you started out managing construction projects. How did you move into your current role?

The opportunity came to me when I was nominated to be part of the team who founded the PMO in Ajman University of Science & Technology in UAE.  My role was there is simply to take part in designing the project management processes. This step took me to another important stage in my professional career through moving to strategic project management in matrix organizations. The PMP certificate played a vital role in transferring me to a strategic position.  

OK, so your role at the university involves setting up project management processes. How did you go about this?

In matrix organizations the most important thing is to involve everyone in designing the processes, especially the processes related to cost control. One of the most important concepts to do that is moving the projects from the project level to an organizational level; this concept impacted the designed processes a lot.

Another important concept in designing financial and cost control processes in matrix organizations is to engage the finance people, because usually they control the project costs, leaving the project managers without any authority. This could be implemented by designing a customized process that balances the power between the finance team and the project managers.

You are also responsible for producing strategic reports. What financial information do you recommend that project managers include in strategic reports?

Usually at certain points, we ask for a complete EVM analysis and a complete forecast for the remaining period of the project. In addition, when we have long projects we usually look after trends just to control the funds in future.

The most important thing in the financial strategic reports is to stay aligned as much as you can with the project budget. Usually higher management worries about the unjustifiable use of the contingency and management reserves.

One of your other responsibilities at the PMO is to deliver a lot of the training to the projects managers at the University. What financial/cost control/budget training do you offer them? Are they keen to learn?

This is good question! In matrixed organizations not all the project managers have financial backgrounds, so sometimes simple accounting, financial analysis and reporting training is important so they learn how to grab the important related information from the financial sheets and reports.

Another important training session is the EVM workshops to learn the EVM technique for the control of costs on their projects.

All project managers can keep developing themselves, not necessarily through formal education but through informal education like workshops, forums and training such as PMI Congresses. This gives you the chance to learn from the experts about practical project management. Project managers might be very strong in their technical field but weak in practical project management and this would be enough for their projects to fail.

You have managed some large projects What are your 3 top tips for managing project budgets?

1. Define a clear scope and create a complete Work Breakdown Structure.
2. Risk is very important topic, the more you respond to the risks early and in a timely way, the more you save costs.
3. Close management control, especially when working to a tight budget, through continuous reporting, managing reserves wisely.

You can find Tarik on Facebook and LinkedIn.

It’s not always easy to know where to look for help when you need advice about money matters. Here are 5 places to look for the answers.

1. The Finance team

The corporate finance team are paid to manage money and balance the books all day. They are your in-house experts for all things from getting invoices processed to budget forecasting and understanding the implications of changes to tax legislation.

Does your finance department have functional leads who face off to different areas of the business? If so, who is your representative? If you work in the IT department, for example, you may find that one of the corporate accountants specialises in the IT budget and they would be a great starting point for your questions.

2. The PMO Finance liaison

Just as the finance team may have staff members who specialises in handling the accounts for your functional area, your PMO may have someone whose role it is to liaise with the finance team.

If your organisation is managing portfolios at a mature level (to the P3O Standard Maturity Level 5, for example), financial control of projects and the portfolio will be an integral part of how the company manages money. There will be full integration between the corporate financial models and the programme and project financial controls, so it is highly likely that someone in the PMO will have the ability to answer your money questions, or at least know who to ask.

3. Books

There are a number of books that deal specifically with project budgeting and financial control. I learn well from books, and being an author myself I have a natural affinity to information in books. Here are two to start you off:

• Earned Value Project Management, 3^rd Edition, by Quentin W. Fleming and Joel M. Koppelman (PMI, 2005)
• Project Management Accounting: Budgeting, Tracking, and Reporting Costs and Profitability, by Kevin R. Callahan, Gary S. Stetz and Lynne M. Brooks (Wiley, 2007). This is my desk reference book when it comes to project financials.

You can check out my blog for more project management book reviews.

4. The PMBOK® Guide, 4^th Edition

A Guide to The Project Management Body of Knowledge (which we know as the PMBOK Guide) contains a chapter on project cost management. It’s Chapter 7, to save you looking it up in the index. This knowledge area contains the processes around estimating costs, determining the budget and controlling costs. It details a number of tools and techniques – not in any great level of detail, but the thumbnail sketches of different estimating techniques, for example, will give you enough to go on to determine whether they could help solve your problem.

You can then go and research that further.

5. Groups

Don’t underestimate the power of asking for help outside of your organisation. There are a number of forums and special interest groups. For example, PMI has an Earned Value Management Community of Practice.

APM also has an Earned Value SIG. 

Even if your question doesn’t specifically relate to earned value management you will find financially-minded people in groups like these who could probably answer your queries. There are also great  discussion groups on this website where you are right now, and you could always ask your question here too.

What other sources of financial information and help do you use? Let us know in the comments.

In the next installment of my video series explaining project financial acronmyns, I look at BCR (that's benefit cost ratio!).