Project Finance. A New Perspective

By Maja Kowalski, PMP Feb 2009

A senior executive at FiNex, a contract engineering company, knocks on Chris’ door. Chris is PM Director of the commercial section. “Hi, Chris. I was just wondering if you could tell me where we are at with the Pacific Pipe project. I need to provide an urgent status update and forecast to the board this afternoon” – asks the executive. “Sure, I’ll check with the Finance Team to see what the timesheet costs are up to, and what the invoicing schedule is for this project” – answers Chris. “Ah,… ok” – says the executive, not entirely sure that he will get what the board is after. He is wondering why Chris needs to asks the Finance Team rather than either have this information handy or ask the relevant project manager.

“Did you manage to get the information on the Pacific Pipe project that we discussed this morning” – the executive approaches Chris when they meet again after lunch. “Oh, yes. Last month the timesheet costs were at $55,000, and given the total contract value is $100,000, we are 55% through the project and have another 45% to complete” – answers Chris with a smile as he’s been able to provide all this detailed information in such a short period of time. “Great. Could I then have a look at those 5 out of 10 construction plans that would have been completed, given you are more than half way through the project” – asks the executive. “Oh, if this is what you are after, no, we are just finalising the second plan. They are taking slightly more time to complete than we estimated, due to several changes that the client requested and some minor issues that we have encountered” – says Chris. “Right. I would like to review the approved scope change requests to make sure we are delivering to the agreed scope” – requests the executive. “Uhhhmm, we don’t really have anything formal on paper. This is a good client of ours and we’ve agreed to make those little changes without the unnecessary bureaucracy” – responds Chris, proud that he has a streamlined process that saves the company so much time and money, and keeps the customer happy….

Can you see a problem here? There are several! Let’s see how we can turn it around…

Four months later…. The same executive comes up to Chris and asks “Hi Chris, how is the Pacific Pipe project going?”. Chris opens up TrackPro, a new project status tracking and reporting tool, and brings up the latest status report “OK, we are 80% done, and the 8 completed plans have been signed off . We have another 2 to go. Our actual costs are slightly higher, so the efficiency metric is currently at 70%. This is mainly due to longer hours that the team have had to put in, in order to finish the critical deliverables on time. We should be able to bring it up to about 95% once the outstanding Scope Change Request has been formally approved. The client had requested to speed up the delivery, and agreed to cover the additional costs. They have paid upfront for this additional time, so we have a small reserve in our ‘Unearned” account. We have an email confirming their approval, but are just waiting for the signed off Scope Change Request to come through, before increasing the contract value in TrackPro”, explains Chris, reading through the project manager’s status report. “Based on the revised forecast, the estimated cost to complete this project is $30,000, in line with the latest approved budget (including the approved scope changes)”.

“Great. On another note, thanks for the commentary on last month’s utilisation report, particularly in regards to those individuals whose actual utilisation was markedly below target. I see you have a strong action plan to resolve those variances.” – says the executive. “Oh, by the way. Fantastic job on the Project Finance Review project, we can finally see what is really going on with our projects, and the real productivity of our resources. This helps with organisational decision making, financial planning and provides the executives and the board with transparency to the progress and health of the projects. I have also noticed the quality of project manager’s forecasts and status reports has increased. The training program that you have put in place with the consulting firm is really paying off. And, finally, just to let you know, our external auditors have acknowledged the benefits of this change as it is in line with several recommendations that they had provided to the CFO late last year. Well done!” – exclaims the executive with a smile.

“Yes, the consultants that we have engaged have added great value, as they have provided a totally new perspective on how we should be accounting for costs and revenue, track project financials, do forecasting and prepare monthly status reports. They have also provided our project managers and finance team with a well designed training course and reference material. And, being an external party, they were able to drive the organisational change more effectively and efficiently, overcoming the “political” hurdles that I’m not sure we could have overcome by using internal resources.” – replies Chris with confidence. “We are definitely going to engage them again, once we are ready for the next phase of the continuous improvement program that they recommended in the Post Implementation Review. And, I now have a designated resource, who looks after project finance, creating a bridge between project managers, the finance team and senior management. He also was recommended to us by the consultants, which saved us large recruitment fees that we would otherwise had had to pay to an agency” – adds Chris. “I am really pleased with the outcome of this improvement project and look forward to seeing further enhancements” – responds the executive as he leaves Chris’ office.

Project Finance. A New Perspective

By Maja Kowalski, PMP Feb 2009

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