How much are we investing? Financial factors to consider in project and portfolio management

Tracking expenditure and revenue flows answers one of the burning ques­tions of every board: “How much are we actually investing in our projects?”. This question often crops up when we are talking about internal, IT or transforma­tive projects. The planning and follow-up model should be agreed with the finance di­rectorate and business units, so that project managers understand the pa­rameters for action, how they should monitor budgets and use of resources.

The PMO should issue clear instruc­tions on:

1. Which cost elements to monitor, especially in terms of hours and pur­chasing.
2. How to incorporate external su­ppliers: hours or deliverables.
3. Which metrics to use: hours, cost, profit, earned value, progress etc.
4. How frequently to measure each parameter.
5. Standardized periods for reporting working hours.
6. Measuring income and profit mar­gins.

In the following sections we analyze these topics in greater depth, highli­ghting their integration into ITM Plat­form whenever possible.

Cost of working hours

If you require oversight of the esti­mated hours, actual hours worked and their cost, the module of stan­dard costs and provider rates must be defined. Carrying out the definition in collaboration with the finance and HR departments will ensure that the project’s financial management is line with the organization’s policies and procedures. ITM Platform offers a module to establi­sh the standard cost from an abstract level down to the most detailed one:

• • • General: hourly cost of any task. Useful in the conceptual phase of the project.
    • Internal and external: whether you use your own people or out­side contractors this allows you to define the hourly cost in a generic fashion.
    • Cost per professional profile: allows you to define the standard cost of the internal personnel for each profile, within different time­frame.
    • Provider rates: similarly, provider rates can be fed into the system, allowing you to compare costs per person and per provider.

Purchases and acquisitions

Purchasing is one of the key activities in any company. When managed properly it enables easier planning and follow up of cash flow. Normally, purchase management is in­corporated in the early stages of matu­rity, typically before monitoring working hours. Nonetheless, it is important that projects synchronize their purchasing with the organization’s financial mana­gement, so that both are in agreement. The purchase flow is a kind of workflow and it must be linked to a procedure pre­viously agreed with the financial and purchasing directorates, ensuring that each project’s purchasing is in line with purchasing practices in general.In addition, budget accounts grouping purchases must be used homoge­neously.

Revenue

Similarly to purchasing, the classification and time management of the project revenues should be synchronized with the organization´s regular financial procedures. The system will then be able to create reliable margins and client profitablity.