4 Best Practices For Project Financial Management

Key Takeaways

• Effective project financial management is essential for ensuring projects are delivered on time and within budget, significantly impacting business profitability and resource allocation.
• Developing, maintaining, and updating a detailed project budget is crucial for tracking costs, measuring profitability, and supporting informed decision-making throughout the project lifecycle.
• Access to real-time financial data ensures precise reporting and alignment with business objectives, aiding in timely and accurate decision-making.
• Identifying potential risks and maintaining a comprehensive risk management plan with regular updates and contingency measures is vital for mitigating financial impact.
• Utilising specialised project accounting software enhances financial management efficiency, accuracy, and consistency, supporting the specific needs of project-oriented finance teams. You can book a demo today.

What is project financial management?

Project financial management is the mainstay of any project-based or matrix-based business. Everything from legal or accountancy firms, advertising agencies, engineering firms, consultancy businesses, financial advisors, or architects: all of these businesses work on a project-by-project basis – which of course impacts how financial management should be done.

Finance leaders in project-driven businesses operate with high levels of complexity due to multiple clients, budgets, pricing strategies, and revenue streams – all of which means greater levels of detail and the need for real-time visibility and accuracy.

Key activities involved in project financial management include all of the following:

• Estimating
• Onboarding, metrics, and milestones
• Budgeting and forecasting
• Billing and recharging
• Closely monitoring costs
• Cashflow management
• Reporting (project-by-project and consolidated)

Why is project financial management important?

The most compelling reason why finance project management is vital is that by undertaking robust project financial management practices, a significant difference can be made to the business bottom line, either in terms of how much profit you make - or whether you spend more time, money, or resources than you’d expected at the outset.

It’s important to correctly forecast and track finances at a micro level as this enables costs, expenses, and budgets to be managed far more effectively, ensuring overspends are avoided and profits maximised.

Running multiple projects at varying stages is understandably complex, so having the right finance tools in place ensures that it’s possible to further minimise the time taken on administrative functions. That way, more focus, and effort can be put towards revenue-generating activity.

There are important practical implications too. For example, it’s common for project-oriented businesses to want flexibility with their pricing and invoicing: unfortunately, conventional finance tools and off-the-shelf software packages don’t always make that easy to achieve.

How to efficiently manage project finances?

Consistently following financial management best practices across all your projects is one way in which mistakes and inefficiencies can be reduced or avoided altogether.

Considering the complexity of running the financial aspects of multiple projects in tandem, it’s no surprise that human error can creep in – particularly if adhering to best practices on a daily basis is not actually easy or quick to do.

That’s why it makes sense to give your Finance team tools that are geared towards the specific needs of project management finance.

4 project financial management best practices for success

Read on to discover how finance tools can help your project business follow best practices.

1. Developing a Comprehensive Project Budget

Setting out a comprehensive project budget brings numerous benefits to your business and to your Finance team. The budget will set out the scope of the project, break down the key elements and costs, and provide the baseline from which you can track and measure profitability and potential return on investment.

Each project budget should also include clear and specific financial objectives and milestones, detail on expected costs, allocate resources, and identify contingency funds.

One of the most important project financial management tasks is keeping the budget updated for the life of the project. Integrating the most up-to-date and accurate data in real time means the budget can also become a ‘live’ resource, helping the project team to make robust daily decisions to support optimum project performance and productivity.

2. Monitoring and Controlling Project Costs

From the outset of every project until its completion, costs must be tracked carefully. For busy firms with multiple projects underway, tracking project finances can be complex task for the Finance team. Ensuring the data is available and accessible real time is vital.

Best practice regarding project cost management includes carrying out regular reviews to make sure that costs continue to be aligned with the project budget (and making adjustments where necessary to stay on track). Implementing KPIs to measure performance is also a useful activity to aid management decision-making.

With all the latest financial data to hand, Finance managers can also make more accurate forecasts and conduct scenario planning activities to further support longer term plans. That means the data should be easily accessible rather than buried in a spreadsheet.

3. Ensuring Accurate Financial Reporting

We already know that access to real time data is imperative for accurate financial reporting. This is especially important when you take into account how quickly and how often project activity occurs or changes – and how often decisions need to be made on the back of the latest information. All of this can subsequently impact the project finances, so it has to be correct.

With accurate finance and data management tools, the right information is recorded on an ongoing basis, adding clarity and insight and ensuring reports are precise and accurate.

Best practice reporting activities include aligning the financial position of specific projects with overall business objectives; incorporating standardised financial documentation and processes to achieve cross-project and in-project consistency; and using reporting tools to regularly review the bigger picture and adjust priorities accordingly.

4. Implementing Effective Risk Management Strategies

Managing risk effectively is impossible without having first clearly defined the scope of a project. For truly effective risk management, project finance managers must have a clear understanding of all the potential risks, the likelihood of each occurring, and the scale of the potential impact on the project at key stages.

With this baseline in place, it is then possible to develop a comprehensive risk management plan which includes risk assessments as well as financial impact and contingency budget information. Best practice also requires these details to be kept up to date (and adjusted as necessary) during the lifetime of each project.

Master project financial management visibility and efficiency with Access

Putting the best project management finance tools in place is a practical route to more effectively managing project finances and project profitability for your business.

Whilst Finance departments within project-oriented firms are used to what needs to be done to keep on top of the numbers, they don’t always have the best software solutions in place to make that task easier, more accurate, and more consistent.

That’s why we have developed tools and functionality that specifically support the needs of project management finance. Check out details of how we do that in our project management factsheet – and gain a greater understanding of why so many professional services firms have opted for Access project accounting software. Alternatively, you can book a demo to find out more.