Commercial Aspects of Project Management

In 2005, fresh out of MBA School, I was put on managing an e-business transformation strategy project. It was then that realized that project management was a full time job (I always wondered before that why PMs were even paid a dime!). We created huge Project Management reports for the client, where were tracked and managed 9 outside vendors and our team. As if tracking the project was not a nightmare, one day the partner on the project commented – “Phew! Even after so much of effort we may not generate the hurdle rate!”

It dawned on me – finance was also a crucial part of Project Management.

All the PM templates

We had all those great looking Gantt Charts, issue tracking sheets and a whole lot of other project management and tracking tools. Obviously they were not as great as Chandoo’s PM templates (He is the host here! ;-))

But they were fine. We had the project under control and everything seemed to be fine. But the client had put in a clause which said that we would be not be paid per month, but based on reaching certain milestones. The project direction had been changed and unluckily we were to reach the contracted milestones late!

It’s all about money honey!

From my experience I realize that most of the project managers are concentrated on making sure that the delivery is on time. They don’t step back and think whether their action makes business sense. After the bitter pill, I realized that businesses (and the projects) were there to make money. If you lose sight of that objective, it can hit you hard.

All the project managers should be ready to learn at least a bit of finance and financial statements.

Accountants have their own language!

Just like all natives of England speak English, France speak French, Microsoft speak dot net, Sun speak Java – Accountants and Finance guys speak GAAP (or a variant – IFRS!). They have their own accounting principles.

Now if you visit France, you may not want to be an expert in French. Believe me it never hurts to know a few words in French. Since business is all about making money, it would never hurt to know the language of the finance people.

Basically Finance guys follow standards called GAAP (Generally Accepted Accounting Principles) or IFRS (International Financial Reporting Standards). It tells you the policy of telling what would be revenue, costs, capital expenditure, etc. Based on these principles, companies communicate the financial statements to the outside world. Once you know the principles, you can interpret them and understand about the performance of the company.

Where can I see them speak?

All the public companies in US have to give out their financial statements in the form of 10K (Yearly) and 10Q (Quarterly) statements. These are listed on sec.gov.in, EDGAR database and are free for you to download. The basic process is very simple.

· Just visit: http://www.sec.gov/edgar/searchedgar/companysearch.html and search for your favorite listed company

· Click on your selected company

· Select the relevant report

· And you can get to the financial statements (Consolidated)

Similarly you can create your own financial statements for the project. It need not be exactly compliant with what the accountants have to say, but it should definitely be close.

You want to learn more?

Pristine and Chandoo.org are planning to launch a course on Excel for Project Managers. This course enables Project Managers do their work better by using Excel & Financial concepts.

This would be an online course and we are expecting to launch the program by first week of November.

Next Steps

What has your experience been with Commercial aspects of Project Management? Lets discuss the issues that you faced and I will try to explain the basics of financial statements in some of the next posts. Hope that you find them interesting.

For any queries regarding the cash impact or financial modeling, feel free to put the comments in the blog or write an email to paramdeep@edupristine.com