It’s not easy to keep track of project costs. It’s even harder to relate them to resources, time, and budgets while projects are still ongoing.
Often, we find ourselves waiting to the end of the month (or even longer) to see accurate project financials. By that time, it’s too late to make quick decisions if a project isn’t on track.
In this era of continuous change, organizations need to keep a tight rein on their finances. As a result, waiting until the end of the month, milestone, or project for definitive answers is no longer enough.
Project financials must be available on-demand – at any stage – to inform fast, accurate decision making.
Why are On-Demand Project Financials Important?
In the past, project financials focused on costs and revenue. However, such a simplistic approach is no longer enough to enable project teams to adapt to continually changing customer needs.
Today, project financials are focused on managing scenarios and making tradeoffs to support continuous planning cycles and ongoing work. It’s not just about which projects get funding – it’s about what return the time and budget invested will generate.
In such a fast-paced environment, understanding the bottom line of every financial decision is essential. Everybody from the project team to senior leaders needs to understand the implications of each decision so they can make accurate, timely calls that contribute to the organization’s broader goals.
Accurate financial data based on actual project performance can help your organization:
- Act quickly in response to changing conditions
- Maintain alignment with business objectives
- Understand the exact status of a project, including its budget, work progress, and potential issues
- Ensure all project work, including resource assignments, is in line with the budget and business objectives
- Proactively plan for the future
- Quickly and accurately answer questions, e.g., “Which projects could we put on hold to help the business cut costs?” or “What’s the impact on the workload and project outcomes if we need to cut costs by 10% next month?”
3 Steps to Better Project Financials
Up to now, most organizations have managed project financials separately from project work, often using a procurement system like SAP or Oracle. While there is logic to this approach, it isn’t conducive to the demands of today’s continuous work environment. After all, how can you make accurate decisions about an ongoing project if you can’t tie financial data to the work in progress or already completed?
The solution is simple. When you manage financials alongside work – using the same system for both – it becomes easy to see every project decision’s bottom line.
All it takes is three simple steps.
Step 1: Identify the real cost of work across your organization
How do employee hours translate into dollars? Answering this question requires two components:
- Hourly costs
You don’t have to go down to the individual level, and clearly, not everybody should be able to see what other individuals earn. By setting average role-based rates, you can estimate labor costs for different types of project work. If your business relies on billable hours, you should also determine hourly bill rates so you can easily measure and track profit margins while the work is in progress.
- Accurate time tracking
With the right system, time tracking at the individual level can be fast, easy, and, above all, mandatory. If you don’t track time spent on projects accurately, you’ll never really know how people spend their time. As a result, you’ll never have accurate project financials.
Step 2: Proactively improve planning and decision making
Having lots of data is only useful if you have real-time visibility. If you don’t, you simply won’t have an effective basis for sound decision making.
When you have systems in place to track project costs and resources in real-time, you’ll dramatically improve your ability to make fast, accurate decisions – both for individual projects and at a broader strategic level.
For example, if your data shows that a project phase or task is trending over budget, you can immediately decide how to respond. On the other hand, if you had to wait until the end of the month to have accurate data, it might already have gone significantly over budget, leaving you in a far worse position.
Having real-time data on project work and financials can also help you identify broader trends. For example:
- Which types of costs do you routinely overspend on?
- Which types of projects provide the best return, either through revenue or business value?
- Which teams or individuals are most productive in terms of how their time translates to dollars? And do you have the right mix of skill sets and experience levels to maximize their engagement level and minimize your cost?
When it comes to planning for the future, having a comprehensive set of data that shows how employees, projects, and portfolios have performed is essential – and that’s exactly what you’ll build when you manage project financials and work in the same system.
In effect, your enterprise work management system becomes the single source of truth for all elements of planning, execution, and monitoring. This enables you to accurately forecast project and portfolio performance based on up-to-the-minute work and financial records – and adjust dynamically to respond to change.
For example, you can:
- Tangibly measure the impact of risks, issues, and change requests through the approval lifecycle
- Predict the financial impact of a change order
- Flexibly forecast and reforecast all project costs – both labor and otherwise
- Identify trends across the organization so leaders can see where they may need to take action
- Use historical data to estimate costs and revenue from a project or new customer before starting
- Estimate project resources, costs, revenue, and profits so you can provide accurate customer quotes
Step 3: Align and optimize all work against business goals
The ultimate goal of all project work is to support business goals, whether through increased revenue, reduced costs, or other measurable outcomes. Having a single source of truth for project work and financials makes it infinitely easier to optimize project resource deployment.
This has obvious benefits for the organization as a whole, but it can also be a huge benefit for project and portfolio managers. Having the ability to demonstrate how work and financials correlate to business goals can be the difference between:
1. Keeping all of your resources; or,
2. Losing them to another project or priority.
To illustrate this, consider this customer story, recently reported to our VP of Customer Experience, Angela Bunner.
At this individual’s organization, management inspected all departments to see what projects they had underway and how they were performing. This individual heard from other departments that the inspection was grueling, with meetings running to multiple hours.
However, when the team came to inspect this individual’s projects, the meeting took 20 minutes. She was able to pull up dashboards in Clarizen to aid the discussion. These dashboards reflected her capacity plan, what her teams were doing, and how their work aligned to the organization’s goals using real-time resource and financial data.
The result: the inspectors moved on without making any reductions to the organization because they could quickly and clearly see the value the division was having on business results.
This is the power of having on-demand data for both project work and financials — the ability to make fast, accurate decisions at all levels and ensure resources are invested to best support business objectives.
Know the Bottom Line of Every Project Decision
This article has covered the basics of how and why you should manage project financials and work through a single system. In reality, there’s a great deal more to say on the subject.
For a full rundown, watch our latest on-demand webinar, presented by Clarizen’s VP of Customer Experience, Angela Bunner. The webinar covers:
- Why accurate, up-to-the-minute financials based on actual project performance are critical for sound decision making
- How to tie financial data more closely to ongoing project work to ensure you’re making the right tradeoffs
- How better access to project financial data provides benefits across the entire organization, from project sponsors and portfolio managers to the teams responsible for delivering each project
- The case for managing project work and related financials through a single system and how this approach can benefit your business