Monday, May 6, 2013

Money Management Rules For Every PM

To understand the financial end of your project does not require that you have a degree in accounting. However you will find it most helpful to understand some basic accounting terms, concepts, and practices.

You will find it easier to communicate with financial professionals within your firm and to understand their concerns regarding your project and the financial health of the firm from their perspective.

The PM’s key financial responsibility is to deliver the “as-sold” performance level. The “as-sold” financial performance is determined when the contract is signed with the client. It is usually represented by financial measures such as direct labor multiplier, dollars of gross profit, collection period for invoices, etc.

These performance measures should be established independently for each project. A successful PM meets or beats these financial parameters.

The PM’s primary method of meeting the financial goals is by using a strong project control system. By implementing a project management plan with the associated scope of work, schedule, and budget control systems, the PM has the best opportunity to meet the project’s financial goals.

A strong change control program is extremely vital to a financially successful effort.

Collecting invoice payments is not the job of accounting. It’s the PM’s job! The owner of any business understands that profits are good— but cash is king! Allowing clients to drag out payments is like providing them with interest free loans.

The PM must take an active role in enforcing the payment terms of the contract. Bringing in cash is too important to leave the job to anyone else.

Don’t be afraid to take action with slow paying clients. Too many firms are reluctant to initiate collection activities with their clients because they might result in poor client relations. Clients demand that you fulfill your contractual obligations to provide service—why not the reverse?

Effective PMs understand the fundamentals of accounting. The PM is not an accountant, but must understand some accounting. The business world measures performance in terms of dollars—revenues, profits, financial ratios, etc. A project manager needs a basic understanding of how the firm’s financial process operates to succeed.

Making a profit is an absolute necessity to stay in business. Profit is not just something that ends up in the owner’s pocket at the end of the year. Profits are used to buy assets (computers, office furniture), pay bonuses to key employees, fund contributions to retirement accounts and more.

The PM must focus on delivering the “as-sold” gross profit to the firm. Without this, the firm will have difficulty making what it needs to continue in business.

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