A critical component of a successful project is understanding and accurately tracking all relevant finances. When you think about project finances, profit may be the first figure that comes to mind, and though it is vital for running a successful business, it is not the only number a Project Manager should track.
At Easy Projects, we use the following comprehensive definition for Project Finances:
The forecasting, monitoring, and management of any expenditures attached to a particular project and its relation to the team’s ability to complete the project on time and budget.
To help make the full scope of project finances easier to grasp, we have created The Ultimate Guide to Project Finances. By reading this guide, you will be equipped with project finance definitions, formulas, and real examples of when to best use them so, moving forward, you can ensure your project’s financial overall health is strong!
Why Project Managers Need to Understand Project Finances
Completing a project and delivering it to a Client is one way to measure the success of your project; the other is understanding its full financial health.
If you delivered a project to a Client on or before the proposed delivery date, you would likely consider that a success. If your project met the deadline but was over budget by 15%, would you still consider that a win? According to Harvard Business Review, one in six projects have an average cost overrun of 200% and a schedule overrun of nearly 70%.
Project Managers do not want to share the disappointing news to a Client that their budget has been exceeded, or to lose money on a job because they have to absorb the extra cost. To help avoid this, let us dive into the three essential pillars of project finances: cost, budget, and billing (revenue).
When it comes to a complete understanding of project finances, the difference between cost, budget, and revenue is a topic that often causes confusion. Let us try to clarify things a bit. As a bonus, we will also include project profit.