Mending the Bridge between Project Management and the Investment Department
In a large construction or infrastructure project there are many things that can go wrong and push the project over budget and over deadline. So many!
Irrespective of how careful the planning and budgeting were, you always have to consider the human factor and unexpected events. There is little you can do about those.
But you can do a lot to mitigate more typical risks!
Let me be honest: when the idea of creating Project Reader first came to me it wasn’t out of the desire to build a business. It was out of sheer need.
You see, it’s been more than 10 years since I started working as a Project Manager or Project Controller in large construction and infrastructure projects. I’ve seen (almost) everything that could go wrong unfold before my eyes and there was little I could do about it. Quite frustrating! And I know even more surprises await me.
In a construction project, the budget is divided between a myriad of things. Here’s a sample budget.
Image via Tata Tiscon
If the cement price goes up, the whole budget is affected. If one or more of the workers fall ill (during flu season, for instance), the time planning takes a massive hit.
There is very little a Project Manager like me can do to mitigate such risks.
But I’ve also seen a lot of project delays and budget issues that could have been prevented. And it’s my strong conviction that most of them stem from the poor communication between the investment department and the Project Managers.
Let me set the scene for you.
The Huge Role of Projects in Large Companies
When a construction or energy company board decides they need a larger production capacity, it feels as if a huge piece of machinery is set in motion. CAPEX (Capacity Expansion) is one of the turning points in the history of any company. It can literally make it or break it.
A CAPEX endeavor is run through projects. Gigantic ones. The financial planning documents alone take months (if not years) to be prepared.
Such an immense project ultimately ends up being a company within a company. It has its own leader, Project Manager, Project Controller, even its on communicator. And the special attention of the CFO and the investment department.
The Project Manager works very closely with the CFO. He is also the one that makes the decision. But ultimately, it’s the CFO that allocates the budget. In fact, the investment department is more involved in such a project than top management or any other departments.
You might be tempted to say that everything sounds like a match made in heaven. And you’d be partly right. It could be. But it’s not always this way.
The Difference between Financial Accounting and Management Accounting and how it Impacts Large Projects
Both finance accounting and management accounting are very important for any business, but they are also widely different. The main difference between the two is that financial accounting is typically used for external stakeholders, while management accounting is used internally.
Let’s expand upon that a bit.
Financial accounting deals with a certain past period and analyses the company’s (or the project’s) performance during that specific spell. On the other hand, management accounting does not look at past periods. It looks at current trends and market forecasts and it is used by managers to make operational decisions in fluctuating environments.
How does this relate to project management?
I’m glad you asked!
The Difference of Perception between the Investment Department and the Project Managers
Project managers are much like management accountants. They don’t look to the past to make decisions. They take into account current trends and forecasts in order to make executive decisions.
For instance, if a Project Manager considers that there is a high risk of construction workers falling ill, he will make arrangements to set extra hours for the healthy ones or hire contractors. His goal is to finish the project in time.
CFOs, on the other hand, will look on past expenditures to allocate budgets. The project’s expenses (i.e. money that has already been spent is their primary concern).
Which is the right approach?
Obviously, both. Project Managers look to the future and they are concerned with sticking to their time table. CFOs need to concern themselves with past expenses — it’s their job — and have no interest in time tables.
This is where problems begin to appear.
Project Managers and CFOs often operate at opposite ends of the world. And they definitely operate in opposite disciplines.
I’ve said it before: scheduling issues shouldn’t be treated as second-rate citizens of a project. Time IS money, money that should concern both financial accounting and management accounting.
When a project doesn’t meet its deadline, extra expenses happen. That’s an undeniable connection: extra time for human resources, office space, and especially delayed time-to-market generate extra expenses and loss of revenue.
If you pay extra attention to time tables, you can see problems coming — see the example with ill workers above. You can solve them before they affect your scheduling and thus solve the financial problems, as well.
So why isn’t everyone (from Project Managers to CFOs and stakeholders) more concerned with time tables?
Good question! It’s the one I asked myself, too.
And the answer came swiftly: because they don’t know about them.
Enter Project Reader.
A Tool Based on the Need for Better Communication through Departments
When I set out to build Project Reader, this is exactly what I had in mind: solving the age-old problems of departments that know very little about each other, but have to work together.
Much like CFOs (and the entire investment department), Project Managers are also typically swamped in work. And while reporting and planning is a big part of their routine, their plans and forecasts don’t always reach everyone.
This happens partly because not everyone works in the same building (or the same country, for that matter) and partly because, even when they do, CFOs don’t have access to Project Managers’ entire work.
My team and I designed Project Reader as a bridge. Its role is not just to help Primavera and MS Project users keep a better track of their work, but also to facilitate communication between all the departments.
Since we know that purchasing licenses for huge teams can quickly kill any budget, we decided to make it very affordable. This way, anyone can know what is happening in the project at all times.
Also, the software is ideal even for teams working in remote areas with scarce and unreliable Internet connections. The Project Manager can simply upload his work in a couple of seconds when the Gods of Internet allow him to and the entire company can have access to it.
This way, the investment department can see potential problems and allocate resources in real time. When they work together with Project Managers, Planners and Controllers, they can mitigate risks, reduce expenses and shorten the time-to-market.
Projects that get completed within deadline also have a better chance of being completed within budget.
If this story sounds like you, why not try Project Reader? You can download it here and enjoy a 30-day free trial.