Project Management

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Topics: Cost Management, Earned Value Management, Leadership
Need more Financial Budgeting Content
Hi,
Let me start out that I love the Webinars. It's a great way to gain PDU's while expanding your knowledge. However, I think there is an important part of project management that is seriously underrepresented. I am talking about the Project Manger's role in the budget process. I have yet to start a project where someone at the top doesn't ask "How much will this cost me?". I think we need to better arm project managers for these difficult budget conversations. Not having a proper budget is a serious risk factor for any project. I just want more content dealing with these types of issues. Earned Value is nice, but someone will want to know real $$. The PM needs to learn how to navigate the budget process.
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I agree with you. but that is not all of it.
When I was a PM, my VP Finance or the CEO, every month, asked for an updated cash flow forecast. That was always like pulling teeth.
The CEO and the finance people could get the past cashflow from the accounting people, but for the cash flow forecasts, accounting obviously directed them to the PMO.. Now that I am the CEO, I do the same to our PMO: I need monthly cashflow forecasts. I am now pulling teeth.
I agree with you in the practice. In fact, is one of the reasons I learnt an MBA. But, going to project management, the project manager is focused on project costs not in project budget. The budged owner is not the project manager. You have to have an SME in the matter inside the project team. So, what I tried to say, the only thing you need to do in your project is to create "the envronmet" to receive project costs, to create information and to manage the project costs mainly in term of risk because as you know cost is not manage in isolation.
Agree,

it is a good example how project managers often do not understand to report and be accountable to management. As example, many PMs fear to appear in a steering committee, as they struggle to understand in it what is being asked of them (and sometimes politics take place).

You have to learn it. A good sponsor will help you prepare for it. Look at it as stakeholder analysis and engagement.

And, to be honest, cash flow is not a core interest in running a project.

Thomas
Herbert -

Being extremely comfortable with financials and understanding the cost implications of a project is critical, especially on larger capital projects.

A good PM doesn't just keep on direct costs, but will also be thinking about aspects such as sunk cost, opportunity cost and so on in their decision making.

Kiron
Long story short, I completely agree PMs need to be well versed in the budgeting side of projects, but how much detailed involvement they have in the financial estimating will certainly differ by job.

I have always needed a detailed understanding of the costs myself as well, but depending on the job I have not always been the one to translate work and other costs like materials requirements into dollar values. Often I hand off the estimates to the supplier management group to estimate supplier costs, and finance to do the money flow calculations. Part of that is due to limited data such as contractual agreements and assumed interest rates. When we talk financials with the senior leadership, most people have to leave the room/phone call.

The knowledge level to do the financials including cash flow is often above the level of many PMs so I can see how Roland describes that as "pulling teeth". As part of my own MS program, I took courses in cost modeling and financial engineering, both of which were well above the level of knowledge required for the PMP exam.

It's not that it is that conceptually difficult really, but it can get very involved once you get into the details. PMI really scratches the surface, but people who get quite involved in the financials really should educate themselves better on both estimating, and cash flow analysis.
I agree with all the above. And yes, cashflow is not a core interest in running a project.(in many cases, the PM cannot even be found accountable for cash flow because that may be the domain of a contracts administrator outside of the PMO; same with budgets).
However, a lot of the information necessary is only available at the PMO. ( for example, a deliverable may be part of a schedule of payments, and the PMO knows when that deliverable is scheduled.)

All is dependent on the corporate setup, the corporate culture, etc.
My point was that PM should at least understand the issues involved and the implications of his decisions on financial issues, without having to be a financial guru.
In our company, we have suppliers that are paid (by us) for delivery of something. Suppose that such delivery requires storage at the recipient, and that such storage space is not yet available. The supplier will still push to deliver, even ahead of schedule, for improving ITS cashflow. Our procedures (and supplier contracts) now include a special item that stipulates that suppliers cannot deliver without authorization from our PM.
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1 reply by Keith Novak
Nov 04, 2021 1:50 PM
Keith Novak
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At that level, I absolutely agree with PMs needing greater understanding more about how the budgets and cashflow works, even if they don't perform the calculations.

The first time I heard the question, "Is that in this year dollars or future year?", I was confused. I also had no grasp of how budget wasn't allocated as a lump sum, but rather by year or quarter so being ahead of schedule (which sounds good) could mean over budget for the time period.

That type of knowledge including how budgets are dispersed over time, how suppliers are paid under various contract types, etc. is very important to some when you realize that budgets are often not a single invoice and single payment arrangement. Otherwise they are constraints invisible to the PM, and you can't plan for what you don't know.
Nov 04, 2021 1:27 PM
Replying to Roland Vander Straeten
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I agree with all the above. And yes, cashflow is not a core interest in running a project.(in many cases, the PM cannot even be found accountable for cash flow because that may be the domain of a contracts administrator outside of the PMO; same with budgets).
However, a lot of the information necessary is only available at the PMO. ( for example, a deliverable may be part of a schedule of payments, and the PMO knows when that deliverable is scheduled.)

All is dependent on the corporate setup, the corporate culture, etc.
My point was that PM should at least understand the issues involved and the implications of his decisions on financial issues, without having to be a financial guru.
In our company, we have suppliers that are paid (by us) for delivery of something. Suppose that such delivery requires storage at the recipient, and that such storage space is not yet available. The supplier will still push to deliver, even ahead of schedule, for improving ITS cashflow. Our procedures (and supplier contracts) now include a special item that stipulates that suppliers cannot deliver without authorization from our PM.
At that level, I absolutely agree with PMs needing greater understanding more about how the budgets and cashflow works, even if they don't perform the calculations.

The first time I heard the question, "Is that in this year dollars or future year?", I was confused. I also had no grasp of how budget wasn't allocated as a lump sum, but rather by year or quarter so being ahead of schedule (which sounds good) could mean over budget for the time period.

That type of knowledge including how budgets are dispersed over time, how suppliers are paid under various contract types, etc. is very important to some when you realize that budgets are often not a single invoice and single payment arrangement. Otherwise they are constraints invisible to the PM, and you can't plan for what you don't know.

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