New England Project Services

 

 

The Project Manager and Their Interaction with the Finance Organization
By Mike Cooper

 

Finance has several key roles for an organization, and when it comes to IT projects, the following are uppermost in their mind:

  • Project alignment with business purpose and corporate objectives

  • Correct prioritization of work

  • An understanding of costs – actual and forecast

  • Predictability

CFO’s will be focused on wanting to know that IT is providing value for money – are the investments the organization is making in IT projects the right investments, and are we getting value for our investment?  Various people in the finance department will be more focused on the mechanics of maintaining the corporate finances – what has the project cost, what is it expected to cost, what are the different cost elements; some items may be capitalized and need to fit in the capital budget, others may be expensed, etc.  We can divide the needs of the finance department into these two categories – investment decisions, and corporate finances. We will use this to help structure the rest of this article, along with another category – what do we, as project managers, need from the finance department?

OK, so what does this all mean to us as project managers?

With regard to business value, it means firstly that our project must have a clear purpose.  Not all IT projects can be directly tied to a business ROI calculation, for instance we may be doing a project to meet regulatory needs, or to improve our underlying IT infrastructure.  However, there must always be a clear purpose for the project.  If you were not involved in defining this, make sure it has been done.  Steer clear of projects that don’t meet a real need!

As you manage the project, keep ensuring that it is focused on the business purpose.  Doug Webb, Group Financial Controller for QinetiQ Group plc, Europe’s largest science and technology organization, told me recently that when implementing a major financial systems project, “One of the keys was that we used neither a finance nor an IT person for the project management - we appointed a "professional" project manager to oversee the whole project, with finance and IT people working on the team. The reason for this is that I did not believe that either our finance or IT people were very good at project management - they generally got lost in the weeds of their technical specialism - we needed someone who could focus on the process of project management to ensure success. In particular they can ensure that technical scope creep is avoided.”  Clearly here is a finance executive focused on the business purpose of the project, and a warning to IT project managers who do not focus on key business drivers.

As for what happens when your project is completed, beware of the use of the word “completed”.  Far too many IT project managers raise their hands and claim success when a new system has passed user acceptance tests and is put into production.  And here's the problem - they think they have already "succeeded" because they have delivered the system, and maintenance is typically regarded as a boring bug-fix phase with some minor enhancements. I suggest that instead of this mentality, they think not of this work as maintenance, but as value enhancement. It is really addressing the question "how can we get the most out of our investment?". I suggest that with this mentality, you can at the very least go back to your customer after 3 months, 6 months, 1 year, and ask "how's it going?". Meaning, what value are you getting from the system and what could / should be done to enhance that value?  If a vendor or an internal IT shop shifts their mental mode in this way it can have a big payback in terms of how you are valued as a supplier to the business. This is because instead just of being interested in doing the work (building the system) you are showing real interest in the results of the work. And it is the results that were the reason for doing the project in the first place.  This is what the CFO is focused on – is IT providing real value through its projects?  An IT shop that cannot answer the question about what value it has provided over the past year, is going to have a tough time justifying its budget for the upcoming year.  As a PM you can play a part in this by promoting it and including activities and funding for it during the planning of your projects.

You may think that the above discussion, although really important, is not about finance.  But I maintain that any good finance department has these business drivers and IT value uppermost in their mind.

Of course the finance department has responsibilities for maintaining the corporate accounts.  Here, they have an expectation that as a project manager, I make good plans for budgets, make early requests for project expenses so that items like capital equipment can be integrated with the capital purchase plan of the organization, and that I constantly update my project forecast.  I will be expected to follow standard corporate practice for working with suppliers and customers, raising purchase orders, invoices, tracking down payments, etc, in a timely manner and in accordance with the organization’s governance structure.  It’s going to be my job to work with finance to explain where the financial risks are in the forecast, and to collectively agree on budget contingencies.

Let’s now look at the situation from a project manager’s perspective.  Although the PM might be involved in the strategic definition of projects, it is more likely that the PM is brought in once a decision has been made to either start a project, or to provide preliminary information about starting up a project.  When planning, executing and closing a project, as a PM I want the finance department to support my project in a number of practical ways.  The main thing I want to see is an attitude in the finance department that we are supporting each other - the project is (presumably) delivering on some key business purpose, and I don’t want a finance department that just demands data from me without providing the financial tools and support I need to help manage the project to a successful conclusion.

Firstly I want my costs accurately tracked, and forecast total project costs that the finance department produces for the organization must come from my forecast (revised over time) of the project cost to complete.  In other words, I want my view of the project finances to be the same as the finance department’s view.  I have worked on many projects where either the financial systems are not setup to track costs at a project level (typically they would track costs at the functional department level) or the financial system is not integrated with the tracking tool(s) that the project manager uses.

In the first case, as a PM, if finance is not setup to track costs at the project level, you are on your own!  Make sure that you track your project finances yourself, to enable your organization to understand how much has been spent, how this compares to what you expected to spend, and how much is needed to complete the project.  If you don’t track actual money (or can’t since you don’t know the cost of your staff) then at least track the effort spent.  PM’s want to be judged on their abilities to manage predictable projects, which in part means tracking actual costs against planned costs.

In the second case, where finance tracks project costs but their system is not integrated with you (perhaps by direct use by you of the finance system, or by automatic linking of your tracking tool with the finance system), then there is a need to reconcile your view of the project finances with the finance department’s view.  I warn PM’s all the time that the finance department view is the corporate view.  Corporate accounts are managed by finance, not you!  So if you believe the finance view to be “wrong”, think of it as being “different from your view” – and make sure that you work with the finance department to reconcile your view with theirs.  On many projects I have had to do this reconciliation on a monthly basis, and it was a real pain to have to do this.  Integration of the corporate finance system with the project financial tracking tool makes life much easier for the PM.

Another major expectation I have of the finance department is in the area of payments.  To make life easier with the supplier(s) to my project I want an easy mechanism to raise purchase orders, and payment of supplier invoices in a timely manger - so that my suppliers don’t get displeased with me and start to cause problems!  Also, if there is outside funding for my project I want that money as quick as I can get it!  That means issuing invoices to my customer(s) in a timely manner and tracking payments.

Finally, I want an easy interface for internal funding requests – I want it to be clearly defined what the process is, in particular with change requests, and for the infrastructure (both technology and governance) to support this process.

Throughout the project, I want easy access to appropriate reports from the finance department about my project in a timely manner.

To sum up – I recognize that the finance department is focused on value for money and predictability, and I need to do what I can to support this.  For my part, I want the finance department to support my project and provide process and tools that are efficient and effective for both of us.  And this is an important point for the whole organization.  Successful execution of projects are critical to the success of organizations and ALL functions should help make their interaction as effective and efficient as possible for the project manager, so that the organization can reap the benefits of the project as quickly and as cost effectively as possible.

If you have any comments, or war stories related to interactions between project management and finance, I’d love to hear them.  Send me an email.

Copyright © Michael Cooper, 2004

 

                         

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