The Money Files

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.

In this video I talk about the cost management processes.

I was contacted by a student recently who was having trouble understanding some of the outputs from the cost management processes, specifically around the terminology about what goes into a cost management plan.

The trouble is, some of the training material makes things unnecessarily complex. The jargon makes you feel as if the explanation can’t possibly be that simple. I think that was the problem he was having – he couldn’t get past the fact that it was supposed to be complicated.

Some of it is complicated. But some of the cost management jargon is just that – jargon. When you get to the bottom of what the PMBOK Guide is really talking about then you see that actually it’s quite simple.

Here are the 9 areas of a cost management plan that he asked me to help define.

1. Unit of measure

This is just a fancy way to say ‘day’ or ‘hour’ or ‘dollar’.

Write down the units that you are using in your cost management plan. If you are using several, make it clear what is being used for which areas.

2. Level of precision

A precise estimate just means that when you talk about a range of figures, they are all bunched together. The less precise you are, the more your numbers spread out.

Use it like this: “Precision range for this budget item is +/-1%.”

That would be super precise.

3. Level of accuracy

Level of accuracy is talking about the rounding you use in your estimates. An accurate measure is one very close to the actual measure, once that is known.

4. Organizational procedural links

This section of the cost management plan lists the details of any processes you have to follow e.g. what account codes you need to use for budgeting. Basically, it’s information that you will get from the Finance team. Once you’ve written it in one cost management plan, it’s highly likely that every other project for that company will use the same processes so you won’t have to research and write it out again.

Top tip: Copy this section from another project manager who has already worked it out. Then take a few hours to make sure you really understand what their paragraphs mean and copy and paste it into your own plan.

5. Control thresholds

This relates to the agreed amount of variation allowed in your project. In other words, are you able to go over by 10% without having to ask your sponsor’s permission? Look at it as another way to describe tolerance.

6. Rules of performance measures

Write in the plan how you will track how you are doing against your budget and at what level e.g. every week, every month, to the penny or to the nearest £100. Say if you will use Earned Value Management or not and if you are going to use it, then how you are going to do so.

7. Reporting formats

Your cost management plan just needs a sentence that explains what format you are going to report in. There’s nothing special about this. You just write ‘We’ll use the standard project report template to report on cost’ in the cost management plan document, or whatever you are going to use.

8. Process descriptions

Write in the plan ‘We’ll follow the normal accounting processes for our company’ or whatever process you are going to follow.

I have never met a manager who expects there to be a process flow diagram in here explaining how each financial process works. Perhaps it’s relevant for consultancy bids, but I doubt that many businesses require more detail than just a few lines referring back to standard operational practices.

9. Additional details

This is just a generic section of the cost management plan for anything else that needs to go in.

If you think of anything that is useful for you to record, shove it in here.

Now, it’s perfectly possible that I’ve misunderstood some of these terms myself, and made them seem much simpler than they really are. Feel free to chime in and let me know if that is the case. Maybe I’m missing something, but it does seem like a lot of buzzwords to me.

I’m delighted that Carl Nixon, The Excel Expert, has offered to answer your questions on spreadsheets, and in particular, Excel.

In my experience project budgets are often done in Excel – it’s certainly the product I turn to. I use it for everything from doing the odd sum instead of loading that calculator desktop app, to building complex financial trackers.

They aren’t really that complex. I’m not an Excel Expert, unlike Carl.

So, without further ado, I’d like to introduce you to Carl in his own words. At the bottom you’ll see how to get in touch with your queries. I’ll collate the questions, feed them back to Carl and in a future article he’ll answer them for you. I’m really excited! I think we could all learn a lot.

Introducing Carl Nixon – The Excel Expert To Answer Your Excel Questions

As a freelance “Excel Expert”, I provide Excel spreadsheet services to companies big and small around the world. I have helped them to save thousands of hours and to reduce their errors to the barest minimum.

Working as a freelancer has resulted in me working on some very unusual and exciting projects. I have helped farmers understand data gathered from drones, supermarkets plan their pricing and global brands to plan billion-dollar expansions.

As well as providing freelance services, I am currently developing a number of off the shelf solutions for smaller companies.

Tell Me About Your Excel Problems

I have teamed up with Elizabeth and ProjectManagement.com to answer any of your questions on Excel spreadsheets. So, if you have any issues in the following areas get in touch:

• Problem / broken formulas
• Problem / broken macros
• Problem reports / charts
• Error prevention / capture
• Security

My aim is not to just look at practical issues of building a spreadsheet (formulas, macros etc); I can also give you advice on more general spreadsheet concepts as well. We can talk about good spreadsheet design, automation, error prevention and even data security.

So fire away with your Excel questions, no matter how big or small they are!

My Bio

Just over 6 years ago, I decided to become a freelance Excel consultant (www.excel-expert.com). My reputation for creating no-nonsense solutions soon spread and I quickly picked up clients that included Pepsico, Walmart, General Mills and many other household names.

When I manage to get away from spreadsheets my life revolves around kids. Especially my four wonderful grandsons who seem to eat up every minute of my spare time.

A real passion of mine is helping children’s charities and causes here in the UK and in Eastern Europe. I have done everything from organising film premieres to delivering aid in war zones (Kosovo).

Thanks, Carl!

Leave a comment below with your Excel queries and we’ll be in touch when the answers are up.