Project Management in Practice

Beyond the alphabet soup of PRINCE2, MSP, MoP, PMBOK, ITIL, Agile

How much financial knowledge do Project Managers need?


I attended a training seminar the other day on finance and accounting for non financial managers. It was an interesting training course. If you consider the constraints within which project managers must work to, one is financial. The last time I studied anything remotely close was accounting 101 during the first year of my under graduate degree some 17 years ago.

How much financial knowledge to Project Managers need

The course was run by Victoria University Professional and Executive Development school. Not being a student of accounting and finance, the seminar title seemed like exactly something that I’d be able to use in my project management role. As the course outline was being set out, I realised this was probably the wrong form of accounting for me. The primary focus was on accounting concepts and how to understand company accounts and performance. It appears management accounting is what I should’ve been looking into for making decisions based on numbers.

While I didn’t totally achieve what I wanted to in terms of outcome, it wasn’t a total waste of time either. We focused on importance of cash and return on investment based on various capitalisation models. I had never thought to consider projects, or even business cases along those lines. It is a very useful knowledge to have when considering the straight ROI figures. I will be much wiser to attempts at manipulation along those lines.

This all made me think, how much financial knowledge o you really need to manage projects effectively? Projects are usually incurring expense until such time it is transitioned into the business. Usually project managers will not be responsible for the realisation of he benefits. That means unlike accounting, all the numbers are in one direction. That is why most project managers will be able to get away with limited or no accounting and finance knowledge, as long as te are reasonably good with numbers.

This all changes when the project manger becomes responsible for both generating income and controlling expenses, which is the case in supplier environments. I have a set number of resources that I can utilise for various projects. How I use these resources not only determines success, but also income for my team. In strict sense this is more akin to portfolio management, rather than project management. In this scenario, I found the focus on importance of cashflow and various funding models was very useful.

If you are running a programme that is designed to deliver a financial benefit, I can see a very practical application in terms of analysing if you’re meeting the desired profit targets. Similarly, if your benefits can be quantified in terms of monetary value, then understanding accounting and finance is very useful. However, in general I haven’t found the lack of understanding in this area hasn’t necessarily made life any more difficult, as I am comfortable with numbers in general.

My role involves more than simply managing projects. It also includes forecasting of revenues, participating in the sales process and contributing to strategy among others. I still think understanding management accounting may be very useful. I will probably look to get some more professional development in that area. Again, those in my view are more portfolio management in nature, rather than project management.

What has your experience been? Am I totally off track?

Image Credit: best-financemanager.com

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