Refocusing Projects Onto Business Value, Part 10: Financial Management

Refocusing Projects Onto Business Value, Part 10: Financial Management

With value-focused projects, financials are not seen in ‘making budget’ terms, but in ‘profit and loss’ terms

Traditionally, projects are allocated a budget for delivery. This allocation, plus any contingency, is what they've got to spend. They need to deliver their project within this constraint. Being 'on budget' is seen as a critical project control.

But, with value-focused projects, the financials are not seen in 'making budget' terms, but in 'profit and loss' terms. The 'profit' is the nett value to be realized. If you can increase this profit this is good. The 'loss' is the cost of delivery. If you can reduce your costs, while maintaining your (long term) profits, this is good.

With value-focused projects, alternative approaches, risks, issues, and scope change requests are all now evaluated on the basis of their impact on the project's P&L. Will this increase or reduce our nett profit?

While not strictly analogous to a commercial project management firm to whom the P&L of a project is their income less cost of delivery, a value delivery project's P&L focuses on preserving or increasing the project's nett value and, thereby, its profit.

The project manager looks to manage the team's productivity, minimize unnecessary risk management activity (to reduce overall costs), and bring forward benefits realization (to increase overall value).

The project is no longer about 'coming in on budget' but about managing, preserving, and optimising the value (profit). It's a very different mindset.

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Click here for the ninth article in this the series "Refocusing Projects onto Business Value, Part 9: Benefits"

Click here for the first article in this the series "Refocusing Projects onto Business Value, Part I: The Need".

Jed Simms is CIO magazine's weekly project management columnist. Simms, founder of projects and benefits delivery research firm Capability Management, is also the developer of specialized project management and project governance Web site

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