If you’re an agency professional, you know how important project financial management is. But are you fully satisfied with your current system?
In this guide, we’ll go through the essential concepts for effective agency financial management, discussing useful resources and data to drive business growth. Keep reading to learn how to optimize your day-to-day agency operations with financial planning.
Key Takeaways
Project financial management is the process of handling all financial aspects of a project within an agency. It includes key steps such as estimation, budgeting, risk management, and financial reporting. Another term that’s frequently used is project budgeting or project budget management.
PRODUCTIVE PROVIDES INSIGHTS INTO KEY PROJECT FINANCIALS
The managerial roles that handle financials usually depend on the agency size: a project manager usually manages it with their other responsibilities, such as timeline tracking and capacity planning. In some organizations, you might also encounter the specialized role of the project accountant, which handles tasks dedicated to finance and is in charge of the project accounting process flow.
The project manager will usually work together with a finance manager to set the budget and monitor expenses. In startups or small agencies with leaner operations, this might fall to a C-level role.
The role of the Finance Manager is more number-based, but there’s a lot of crossover with Operations. That was one of the main reasons we moved to Productive: to have this one source of truth across the business.
elen Mutch,
Finance Manager, Etch
Regardless of the specific position carrying out the function of a project finance manager, this process is an essential part of your project’s success. It must be carefully monitored from start to finish to ensure everything is going according to plan. After all, the healthy functioning of a single unit or project within an agency points to the overall operational efficiency and financial health of the organization.
Project financial management is usually undertaken in phases that correlate with the project lifecycle.
1. Initiation phase: Before the project is agreed upon, its financial feasibility needs to be assessed with regard to agency capacity.
2. Planning phase: Financial management starts during project planning. Project expenses and budgets are allocated alongside main milestones and their timeframes.
3. Execution phase: While the project team is working on delivering tasks, the budget needs to be closely monitored for expenses and cost variance (you can calculate it by using the cost variance formula).
4. Closure phase: When the project is complete, a financial review should be conducted to gauge the return on investment (ROI) and the overall financial impact of the project.
Financial management is a core part of effective project management. Doing it right means you’ll likely deliver your project within the timeframe and with high-quality results. Doing it wrong can set your agency’s growth back considerably — in fact, research shows that for every $1 billion spent on projects, nearly $122 million is wasted due to poor project performance, often linked to inadequate financial management (PMI).
So then, what are some specific ways in which project finance management enhances business performance?
The benefits are numerous, but here are some of the main things to consider:
According to the Standish Group Chaos Report, some of the most frequent causes of project challenges are: incomplete requirements (12.3%), changing specifications or scope creep (11.8%), lack of resources (6.4%), unrealistic expectations (5.9%), and unclear objectives (5.3%).
While budget overruns can occur despite all precautions, one of the main steps toward successful risk mitigation is client-agency transparency.
I think that in project management there’s a tendency to focus solely on profitability, but it’s inevitable that projects will go over budget, and that’s ok. However, it’s important to have transparency on where that stands, and Productive gives us that visibility.
Amy Nichols,
Director of Operations and Productive Champion at Seven2
But in order to maintain open communication, you need to have accurate and timely budget tracking. Doing this manually can be challenging and error-prone, but the right software solutions can help you automate this process and receive reliable data in real time.
