Project Financial Management Best Practices to Follow
Four project financial management best practices that help your A/E firm monitor project profitability, revenue, costs, budget management, forecasting, and more.
by Lucas Hayden
3 minute read
Because architecture and engineering firms are in the business of projects, the financial health of their projects translates to the financial health of their business. Project financial management in a project-based business includes more than tracking assets, revenues and expenses; all this must be aligned to projects and customers.
Let’s start with a quick definition of project financial management. Project financial management—in short—is the practice of tracking the financials of a project, which includes monitoring project profitability, revenue, costs, budget management, forecasting, and more. How do A/E firms do this? In this blog, we will explore 4 project financial management best practices.
Establish and Measure KPIs
“If you can’t measure it, you can’t improve it!” —Peter Drucker. This is certainly true with project financial management. While measuring every aspect of financials is important, establishing Key Performance Indicators (KPIs) and really focusing on a few metrics allows project managers to align on corporate and strategic goals, be more proactive instead of reactive, and better understand what defines true project success for the firm.
Before A/E firms jump in and decide to establish some KPIs, it’s important to note that firms should prioritize the metrics that are the most meaningful and important. For example, it won’t be much use to the organization if project managers are only focused on burn rate. Yes, how much money a project is losing is one metric to keep an eye on. However, it may be more productive to track and set goals around earned value and project gross profit margin to give stakeholders a bigger picture of project performance.
The most valuable metrics and where project teams should focus their KPIs might look a little different per firm, but the idea is the same. KPIs provide A/E firms strategic direction and the insight they need to course-correct as needed. Read more tips for choosing KPIs in our blog post.
Standardize Project Financial Management Across the Organization
All the employees and teams managing the firm’s project financials must follow the same practices and procedures to ensure not only consistency but accuracy in the numbers they’re working with. If one project manager is focused on different metrics than the rest of the team, or is managing their financial data in a silo, this causes a major disconnect in the information that is being communicated to stakeholders. If this is the case, executives might be trying to make strategic decisions and guide the firm into the future on different—and possibly contradicting—sets of financial data.
Project management staff, executives, and other relevant stakeholders must be speaking the same financial language- reading from the same sheet of music. Anyone should be able to look at a budget report and be confident that this data is accurate and up-to-date. Speaking of reviewing the data, let’s discuss the importance of reporting for project financial management.
Monitor Financials with Real-Time Reporting
One excellent way to manage project financials? Reporting & Analytics. Creating reports and dashboards provides a bird’s-eye-view of the financial health of projects and prevents project managers and executives from operating in the dark. Reports and dashboards enable project managers to keep track of all the KPIs and other metrics that matter most, including profitability, earned value, project costs, and more. Plus, interactive analytic dashboards leave a data trail and allow project managers to pick up on patterns and look back to past projects for guidance on future ones.
However—not all reporting systems are created equally. Firms keeping track of financial data in spreadsheets are missing out on the big picture. It’s easy for spreadsheets to quickly become outdated—or accidentally deleted. Not to mention the difficulty of trying to understand someone else’s spreadsheet and find the needed information. Even firms using financial software may find their system is not centered on projects and is not purpose-built specifically for A/E firms, therefore lacking in crucial functionality and insight they need.
Modern A/E firms need modern reporting solutions. A project-based ERP that is purpose-built for A/E firms is essential for effective project financial management. It streamlines the project financial management process, allowing project teams to all get on the same page. All the information is automated and provided in real time. Anyone can pull up the dashboard and know exactly where any project stands at any given moment.
Communicate with Stakeholders
What good are financial reports if stakeholders aren’t using them? Once project teams have determined KPIs and used a robust ERP solution to track them, they must train and communicate with stakeholders on using the reports, too. Most modern ERP solutions are user-friendly, which contributes to higher stakeholder adoption. No more requests to pull data manually. Stakeholders can log in to the project-based ERP themselves and have all the information they need at their fingertips.