Control project finance with PMPeople

Projects are rarely profitable during the execution phase. Net cash flows are negative because they are intensive in expenses, resource use, procurement, etc. Net cash flows turn positive after the project is finished and transitioned to operations. Project financial returns are measured several years after project closing using NPV (Net Present Value), IRR (Internal Rate of Return), payback, or BCR (Benefit-Cost Ratio). These KPIs can be normally found in a business case, which is a documented economic feasibility study used to establish validity of the benefits of a project and is used as a basis for the authorization. Professional project managers should be familiar with these concepts.

The project manager should know the project funding requirements. Funding often occurs in incremental amounts and may not be evenly distributed. They are usually represented with a step chart. The total funds required are those included in the cost baseline plus management reserves, if any. While the project is executing, the project manager should control the project funding, accounting incomes, expenses, reserves applied and costs. Professional project managers should control the project margin as it was committed, as of the status date and the forecast at project conclusion.

• Costs and Expenses are accounted separately. Costs are linked to “resource utilization” such as team member work hours, software as a service, etc. Some project expenses examples are per diem, meals, travels, mileage, lodging, fixed price contracts, etc. Capex (Capital Expenditures) in projects are usually considered as expenses to simplify project accountancy: If the project needs to buy an asset, for instance, it is usually accounted as the total purchase amount instead of amortization during the project timeframe.

• Reserves are also accounted separately: Contingency reserves are used for known risks with active response strategies. Management reserves are used for unforeseen work that is within scope of the project. When using reserves to pay more for changes in the fixed price contract, or to buy a more expensive hardware, or to spend more travels, for instance, use a reserve account instead of an expense account. When using reserves to invest more employee or contractor hours, or more expensive workers, use a reserve account instead of a cost account.

PMPeople helps control the project funding through some use cases explained below.

Frequently Asked Questions

What is the difference between project costs and expenses?

Costs relate to resource utilization such as work hours or SaaS tools, while expenses cover items like travel, lodging, or fixed-price contracts.

How can a project manager track funding in PMPeople?

PMPeople lets you record incomes, expenses, costs, and reserve usage, helping you compare actuals against the committed margin.

What financial KPIs are commonly used for projects?

Common KPIs include NPV, IRR, payback period, and BCR, usually found in the business case to assess project benefits.