The Money Files

The Standard for Program Management (Fourth Edition) talks about how to track program financial metrics once your financial management plan is up and running. I thought it would be worth comparing the guidance to what I’ve done as a program manager to see how I measure up – and you can compare your own practice to what’s in the Standard too.

Program financial management, as a refresher, is defined in the Standard as:

Activities related to identifying the program’s financial sources and resources, integrating the budgets of the program components, developing the overall budget for the program, and controlling costs during the program.

Once you’ve got the program going, your work as a program manager shifts to tracking the money and making sure you are on track.

Spoiler alert: I’ve never used earned value to do this in real life, although I’m well aware of the benefits of doing so on projects and programs.

I think the techniques you use for tracking very much rely on your organisational culture and maturity levels, and I’ve not worked anywhere where EV is considered part of the way things were done. If you’ve got experience working in an EV environment, let me know how that goes in the comments.

The program manager’s role shifts to monitoring spending and controlling spending, ensuring what is being paid out is in line with the budget. In my experience, as a program manager, I’ve had a fair amount of latitude to move money between ‘pots’ (or projects) to ensure the overall goals of the program are met. And I have to say, I’ve enjoyed being able to make those decisions.

What I haven’t enjoyed is the financial scrutiny. I know we need governance on programs, and I’m all for it, but sitting in a meeting having to present the numbers has always been uncomfortable for me. Not because I don’t believe in the numbers, but because I’m normally presenting to people with an accounting background and honestly they could dance rings around me if they wanted to pick holes in my maths. So I have to put extra effort into making sure I can justify how numbers are put together.

My top tip is to make sure you keep detailed records of how you came to land on certain figures. For example, on a program I’m working on at the moment, we track committed spend, forecast and then actual “out-the-door” spend. But there are a couple of other strands within the program that are accounted for separately (don’t ask, it’s just the way it works best) so I have to make sure I’m clear as to what’s in and what’s out of the numbers so I can justify them every month and make sure we are reporting to the PMO on a consistent basis.

Because trust me, if I didn’t, I’d forget from month to month what the basis of calculation was and report something that wasn’t internally consistent and that I couldn’t justify reliably. Which would be bad.

Governance serves a purpose: it makes sure that a program is operating within approved cost limits and challenges programs that are forecasted to go out of those budget targets. Then the organisation can decide if it wants to continue with the program or not.

I’ve luckily never worked on a program that has been cancelled because of financial issues – but I imagine that is largely luck and the kind of programs I have been involved with rather than any skilful cost management on my part.

My experience of program cost management has been very similar to managing large project budgets: the skills are the same, and business acumen comes into play too. I think that having the bigger picture and goals in mind helps. What do you think?

In my next article, I’ll look at some typical financial management activities as outlined in the Standard and talk a bit more about those.

Let’s say you have been through your programme and are ready to close it out. There is obviously quite a lot to do, and the finance elements will be part of that. Here’s what to consider when closing out the financial management of a programme, inspired by the Standard for Programme Management.

Benefits stewardship

The programme will have created benefits, some of which have probably been realised as the work progressed. Towards the end of the programme, you may need to estimate the ongoing costs for making sure those benefits continue to be realised. For example, maybe recruiting an additional person to manage some deliverables once the programme team is stood down. This should last for as long as the benefits are going to be tracked for, or as long as you think is appropriate.

Any ongoing costs that will be passed to the operational teams should be made clear and budgeted in their ongoing profit and loss accounts for the department.

Leftover funding

Will you have any money left at the end of your programme? Probably not – in my experience project and programme teams tend to spend everything allocated to them!

On the off-chance that you do have funds left – let’s say, in the case of closing the programme a little earlier than expected – you should be in a position to hand some funding back. Any contingency funds that have not been used can be returned to the corporate ‘pot’.

Reporting

You’ve been creating financial reports for the duration of the programme, and those will now stop as the programme is wound up. However, stakeholders may be relying on that information. If there is the expectation that some of the financial reporting is still required, perhaps in a slightly different or amended format, you should put in place options to make that happen.

For example, perhaps another department can pick up running the reports, or they can be automated.

Tip: Even if you are automating the reports, please make sure each report has an owner! When we migrated a load of reports from a legacy system into a new one we weren’t sure which reports were used and which were no longer required because there was no data ownership. We didn’t migrate a bunch of them, figuring that if they were missed someone would say! Nobody said anything, so it’s probably those were simply no longer required, even though the system produced them regularly.

Sustainment

Sustainment of a programme is the work required to make sure the outcomes are maintained going forward, once the programme structure itself is no longer there to support them. Beyond benefits, there might be some additional funding required to sustain the programme’s vision, achievements or outcomes. For example, perhaps you implemented new tools and now the business needs to have someone in post to maintain that software.

In my experience, people who enjoy the environment of delivery are not always the same people who enjoy the day job. You may find that programme resources are not interested in staying on in ‘day job’ roles to support the ongoing running of whatever needs to be sustained, so you could end up having to budget for hiring new roles.

Close out checklist

At the end of your programme, check to make sure you have the following aspects covered from a budget perspective:

• Financial inputs to the programme closure report and any final financial reports or closure statements
• Updates to the financial management plan if necessary
• Updates to the lessons learned database or organisational knowledge repository
• Any related documents that might be useful in the future
• All invoices and supplier contracts wrapped up and closed
• Programme budget and cost centre/cost codes shut down so no further work can be allocated to them.

What else would you consider when closing out a programme budget? Let me know in the comments!

Last month we looked at what goes into a programme financial management plan. One of the components of that document is, of course, the initial budget. You can’t track what you haven’t baselined, so there is an effort involved in making sure that the programme budget is put together in a robust way.

Creating a programme budget that is appropriate, timely, relevant, accurate, detailed enough to get through the scrutiny of the CFO, defendable, transparent and more is a huge, time-consuming task.

So where do you start?

Creating the programme budget

The initial programme budget is put together in the same way that a project budget would be: you bring together all the financial information you have from the business case, estimates, quotes, contractual arrangements and more to plan out what money is available and when it will be spent.

With a programme, you might also need to work out where the funding is coming from and on what schedule. For example, if it’s a grant-based programme of work, perhaps funding is issued in tranches, or made available on the completion or publication of particular milestones. If it’s a multi-year programme, perhaps funding is only available for this financial cycle and the expectation is that more funding will be available from next year’s pot.

Agree financial metrics

Next, work out how you are going to track and monitor the budget and what metrics will be used for benefits tracking. Again, this is no different from project budgets, although the figures might be larger and you may also have opex costs to consider – many projects are able to capitalise their costs so as a project manager I rarely had to worry about opex tracking.

The financial indicators are important because these feed into the health of the programme and will be reported regularly. But on a programme that spans many years and perhaps has difficult-to-quantify benefits, how will you check that work is proceeding as it should? Earned value management is one way, but if your company isn’t set up for that you’ll need an alternative.

The metrics you choose for indicating the financial health of the programme and also the benefits realisation measures will very much depend on what the programme is delivering. Sellafield, which is a multi-year nuclear decommissioning initiative, has a 20-year corporate plan. However, they have set out very clear milestones for each project as part of the transformation timeline.

A digital transformation programme spread over 2 years would have very different financial constraints and would be tracked with different metrics.

You may find that validating the metrics as you go is a suitable approach, if all the stakeholders buy into that. It’s important, however, to get the metrics as ‘right’ as you can because future decisions will depend on them. As you report progress, produce updates or even make decisions to move into different stages, you’ll be presenting the financial numbers using the measures for performance tracking that were agreed when the programme began. So it’s worth spending some time making sure they are the right ones and that people understand them.

Financial risk

Part of the budget planning is also being aware of the financial risk. In Sellafield’s case, for example, the timescale spans 4 government spending reviews which may impact the funding available to the team.

There will surely be budget-related risks that should be added to your programme risk log. They are likely to include similar risks that you’d see at project level, but with a programme focus, such as:

• Changes to exchange rates
• Changes to the price of goods or services
• Strategic changes that alter the course of the programme

There will also be risks that are more programme-focused, specific to your particular programme.

The more risk analysis you do, the easier it will be to calculate an appropriate risk budget. Be careful not to count the risk budget twice, once at project level and then again at programme level, if it’s for an escalated risk.

All this goes into the mix for working out contingency appropriate for the programme, and at what level you wish it to be attributed to the work. At project level? At the overall programme level?  Some mix of several methods for assigning contingency?

Ultimately you end up with a programme budget that will no doubt change and flex as time goes on, but should give you a reasonable baseline from which to start.

How do you know when you’re ready?

The outputs of getting ready to track your programme budget will tell you if you’re ready to go ahead. You should have the following:

• The programme financial management plan including the metrics you will use to track performance
• The initial programme budget, made up of the elements above
• Programme funding schedules showing where the income is coming from
• Payment schedules for each project, component or workstream, at least as far as you know them right now
• Operational costs for the programme e.g. resourcing that cannot be capitalised
• Risks for the risk register.

When all those things are in place, I’d say you were in a pretty good position for the programme’s financial management. What would you say?

Does your project or program have a resource management strategy (RMS)? While they are mainly used in program management, you can also find an RMS useful in a project environment. This is especially the case if your project is not affiliated to a program and you have to work it out how to handle resources yourself.

An RMS sets out how the project or program will get and manage the resources it needs to achieve the change required – after all, projects are about delivering change and you need resources to do that. “Resources” is not just an unfriendly word to describe people. Resources can be:

• Money;
• Buildings;
• Equipment;
• Technology;
• Services, and of course;
• People.

The people element can include temporary staff, permanent staff, contractors or part-time employees.
 
An RMS helps you manage the approach to using these. Not convinced? Here are 7 reasons why you need a resource management strategy.
 
1. It describes how the human resources requirements will be managed. This includes internal and external resources. How will you keep their line manager informed? Will they be part of a matrix organisation and if so how will this work in practice? Will you have the people reporting directly to you instead?
 
2. It describes how you will manage the transfer of knowledge and skills back to operations when the project has finished. This part of the RMS can be an input into the training and communications strategies.
 
3. It defines the dispute resolution process for when resource conflicts happen. And they will! Having this documented in advance will help you deal with issues as they arise. You will already have plans for how to fix problems, for example, when resources are called on to business as usual work or other projects. Who will arbitrate? Will it be the program manager or a board member? Can you solve conflicts yourself or do you need someone else to look at the overall priorities of the project portfolio?
 
4. It sets out how you will resource business as usual activity when you are using project staff for your project. The company still needs to operate, even when project resourcing demands are high. The RMS acts as a prompt for discussions with line managers. You can use it as a basis to ensure that they have plans in place for when they need to resource the ongoing commitments for their departments.

5. It defines an approval process for getting people and money.Don’t underestimate this! It really does help to know in advance about how to get resources for your project. It will save a lot of time and negotiation if you have already talked to the process owners and other people involved and already have this written down.
 
6. It defines the accounting and financial reporting procedures for the project. An RMS can also be used to determine how you will get financial resources, how you will spend it and how you will monitor it.

7. It defines the procurement strategy. You might not need an entire procurement strategy for your project or program, so you may find that this section of the RMS just references your corporate procurement process. This explains how you go about buying things and what arrangements or contracts need to be in place.

Remember that resources are not just people! A resource management strategy can help you be a helicopter project manager and see the big picture for all the resource needs on your project or program.

Have you used one or got any tips? Let us know in the comments.