I often ask executives if they could tell me, right now, how their current projects will affect their company’s finances in 3, 6 or 12 months. A few answer yes, many no and some say “We don’t have any projects”. In reality, if your company has a strategy, which represents change, then your company has projects. So if you answered “We don’t….” then your answer is no!
In order to understand and predict where your company is going, you need strategic tools: strategy, financial reporting, portfolio management and project management. There will be little debate on the first two, but when you mention Portfolio or Project Management, the eyes of executives often glaze over and their minds turn to other things. They do so at the peril of their companies!
Strategy, portfolio management, project management and financial reporting form a continuum that ensures the right things are being by done the right people at the right time to produce the financial results intended. Strategy dictates the objectives the company wants to achieve in a clear and concise way. As I mentioned in last week’s Blog, the executive guides the formulation of strategy along with the help of others in a company.
On the other hand, ensuring that the right pieces of work, or projects, are chosen is the work of management. Management guides the transition from strategy to actual execution of work to attain the strategic goals. This is portfolio management. I also mentioned in last week’s Blog that one of the reasons that many employees “duck under the waves” when a new strategy is implemented is that they can see a gap between reality and the strategy. It is precisely the role of portfolio management to see that the work chosen to do is the right work!
Project management, in addition to executing strategic projects, is the key link between strategy and financial reporting. While there are a number of parallel processes in project management, one important (and therefore often ignored) process is project tracking. Project tracking measures the work completed in a project, and can be expressed in terms of hours or money. In this discussion, we are interested in money.
By linking project progress in terms of money to company financial reporting, we can see the current effect of projects on the company’s financial performance. As well, by coupling the measurement of another project tracking tool, Estimate to Complete, we can predict the effect of project or projects on future financial results.
Depending on the tools being used it is quite possible to know the effect of project work on company financials in real time. Even more powerful is the ability to make educated guesses (also called risk management) about how the project might perform, in order to see what the hypothetical effect of project work could be on company financials.
When a company knows in advance how different situations could affect company financials, they will be able to anticipate the necessary action to be taken. When the company’s executives see results that indicate the problem, they are able to be agile in their response. That is the benefit of knowing how your projects will affect your financial results.
Kevin Callahan was named the COO’s Bulldog by a client because of his persistent manner of finding and focusing on what is important in order to solve a problem. He continues to assist entrepreneurs and small business owners fine tune their operations for maximum efficiency and productivity.