Financial management is a process that brings together planning, budgeting, accounting, financial reporting, internal control, auditing, procurement, disbursement, and the physical performance of the project with the aim of managing project resources properly and achieving the project’s development objectives.
Project Financial Management determines how the project will be financed, including the processes to acquire and manage the financial resources for the project. It is more concerned with revenue sources and monitoring net cash-flows for the construction project than with managing day-to-day costs.
Projects are undertaken to fulfill objectives by producing deliverables. An objective is defined as an outcome toward which work is to be directed, a strategic position to be attained, a purpose to be achieved, a result to be obtained, a product to be produced, or a service to be performed. A deliverable is defined as any unique and verifiable product, result, or capability to perform a service that is required to be produced to complete a process, phase, or project. Deliverables may be tangible or intangible.
Fulfillment of project objectives may produce one or more of the following deliverables:
▪ A unique product that can be either a component of another item, an enhancement or correction to an item, or a new end item in itself (e.g., the correction of a defect in an end item);
▪ A unique service or a capability to perform a service (e.g., a business function that supports production or distribution); and
▪ A unique combination of one or more products, services, or results (e.g., a software application, its associated documentation, and help desk services).
Why finance is an essential part of project management
First of all, every project has to be planned, therefore the manager has to have a financial budget. From that budget, the project is directed, so the cost doesn’t go over the borderline.
The manager should assess the validity of the project via some the determinates such as:
- NPV (net present value),
- IRR (internal rate of return),
- EVA (economic value added),
- MVA (market value added) and etc.
It is a necessity to be in contact with the accountant so there are no mess-ups because managers will need to manage cash-flow, profit and loss accounts as well as balance sheets.
Couple of steps to consider when developing a future project:
- Planning the cost for the project.
- Tracking the costs on every dimension of the project.
- Making a flexible plan for better estimating and alignments by the end of the fiscal year.
- Making a budget that will align with the flexible plans.
- Control Costs via data analysis, good judgments, and project management information system.
- Resource management plan so you can categorize, allocated, managed, and released the resources need it for a project.
- Developing and managing the team
- Identifying the risk and planning the optimal response when it is accursed.