4 Steps To Develop Your Project Financial Plan

Sunday, March 31, 2019, 6:00 AM | Leave Comment

As a Project Manager, if you want to deliver projects on time and under budget and who doesn’t, then you need a Project Financial Plan (PFP) to help you do it.

Once you develop the plan, you can sign it off by the head of the department.

Better yet, you can even try to convince the company at the top level to propagate your PFP throughout the organization.

It will be tough to do it but you can try to have a uniform PFP across the board in all departments.

Creating this plan is not an easy task, but by reading and educating yourself, you can find out how to do it in 4 simple steps.

These steps are: 1) List financial expenses, 2) Quantify financial expenses, 3) Construct an expense schedule, and 4) Define the financial process.

If you are a small company and do not already own expensive software to develop spreadsheet applications, then the free Open Office software is always available to you. Download the latest version at your convenience.

1. List Financial Expenses

   Your first step in developing PFP is to list financial expenses. It will be easier in setting the budget for the project. Identify all types of expenses that are likely to be incurred throughout the Project Life-cycle.

   Typically, the basics expenses are for purchasing, leasing, renting or contracting the resources to the project which includes labor, equipment and materials.

   However there may be other types of expenses as well.

   For example,

   • Procurement of Resources from Suppliers
   • Establishment of a Project Office
   • Administration of the Project

2. Quantify Financial Expenses

   The second step is to forecast the unit cost of each expense type listed. For instance, the unit cost for:

   • Labor may be calculated as the cost per hour supplied
   • Equipment may be calculated as the rental cost per day
   • Materials may be calculated as the purchase cost per quantity
   Calculate the total amount of each expense item
   • Identify the number of roles required
   • Quantify the items of equipment needed
   • Determine the amount of materials required
   • Quantify the procurement items to be sourced from suppliers
   • Calculate the administration costs the project

3. Construct Expense Schedule

   The third step is to build a detailed expense schedule. that will enable you, the Project Manager, to calculate the total cost of undertaking the project on a daily, weekly or monthly basis.

   • Develop Spreadsheet Table
     To create an Expense Schedule, build a table using the free Open Office software if you don’t already have the big guys’ software. You can list all of the expense types down the left hand side of page, and all of the weeks in the year across the page. Then identify for each week and for each expense type, the amount of financial expenditure to budget.

     Once complete, you can sum up all of the expenses for any particular week to gain a weekly budget for the entire project.

     Of course you may wish to calculate a daily, monthly or yearly view, based on your particular project needs.

Assumptions you might want to make
• The project delivery dates will not change during this project.
• The unit costs forecast are accurate to within 5%.
• The funds listed by this plan will be available as required.
Constraints you might want to identify
• Limited information was available when identifying costs.
• A market shortage has resulted in a high labor costs.

4. Define Financial Process

   The fourth and final step is to define the process for monitoring and controlling expenses throughout the Project Life-cycle. Define the Cost Management Process for your project by documenting the:

   • Purpose of the process
   • Steps involved in undertaking the process
   • Roles and responsibilities involved in undertaking the process
   • Templates used to support the process

In a Nutshell
And there you have it! By completing these four steps, you can build a proper Financial Plan for your Project to help you deliver on time and under budget.

Courtesy of…

This column is © copyright to www.Method123.com and originally appeared in their weekly project management tip newsletter.

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