Asking the Experts about Financial Management

We again interviewed Henry Hirschel, Director of Information Technology at Club One. Although much of Henry’s background is in IT, he holds multiple academic degrees, including a master’s degree in Business Administration in Accounting/Management. This month, we spoke with Henry about what information finance needs, and how organization’s can plan, justify and manage resource allocations.

PJ: During the execution of tactical plans, what information does finance need to assess the financial performance of current projects and programs?

Hirschel: During the execution of tactical plans, finance needs to understand the overall health of the project to determine if there is any financial impact caused by changes. Variance is measured as both changes in risk and changes in financial commitments.
Project status reports describe the current state of the project, a picture in time including: overall health of the project, tasks that put the project at risk, status of resources required to complete the project.

Tools that are necessary to measure progress and control changes have these characteristics:

• Measure resources consumed
  
• Measure status and accomplishments
  
• Compare measurements to projections and standards
  
• Provide the basis for diagnosis and re-planning.

Reporting project measurements on a periodic basis provides the foundation of financial performance reviews.

PJ: How do you account for resource capacity above that which is required to manage the day-to-day operations?

Hirschel: Resource capacity that is above the required day-to-day operations should first be applied to future tasks. The redeployment of resources may provide the opportunity to adjust overall project timelines improving the delivery of project milestones. If the resources are no longer necessary, transfer them to different projects. Project managers have the difficult task of balancing all type of resources. The trick is efficiently balancing resources to meet the need of the project and avoid increase in costs due to resource surpluses.

PJ: What is reasonable reassurance that forecasted budgets are sufficient to execute against the defined work scope of the operation for that fiscal period.

Hirschel: Planning and control systems are a subset of the management cost and control system rather than a stand-alone methodology.

Failure of the cost control system does not necessarily mean that that there is a problem with the system. It is only as good as the plan against which performance is measured. A planning system must be designed to account for a cost control system. This operating system is viewed as cost and control systems.

Control systems used for the day-to-day operations must provide:

• A picture of true work in progress
  
• Costs and schedule performance measures that are related
  
• Problems are identified in conjunction with resources
  
• Project manager will have a view of the overall project
  
• Validation of project milestones

Budgets are developed based on past experience and expected future outcomes. Business climate changes affect the original budget assumptions. Changes in business climate will change the expected outcome because budget assumptions do not match the variance between expected and actual outcomes.