Many excellent project managers are seen as superb at implementing and delivering success on the project efficiency measures of scope, time, cost and quality. But is this enough if such individuals seek to develop their career to higher levels?
A topic that intrigues some people in the profession is the apparent lack of concentration on the financial management capabilities of project managers.
The Language of Management
It is not often appreciated that the language of management ultimately translates into money. Project managers need to be financially literate. They need not be experts, but need to be able to interpret figures and understand what lies behind them.
Question - is this theme adequately addressed in the world’s most published standard “A Guide to the Project Management Body of Knowledge (PMBOK® Guide)”?
The first edition of the standard PMBOK® Guide focused mostly on technical issues of project management and included an array of diverse documents, tools and techniques. Mostly developed since the 1950s, the PMBOK® Guide collected them as “good practice for most projects most of the time”.
The latest version, named “A Guide to the Project Management Body of Knowledge (PMBOK® Guide), 6th Edition”, places far more emphases on questions of roles, particularly the role of the project manager, and on the various forms of embedding of the project inside performing organizations.
The word “profit” turns up only 12 times. Only two of these instances refer to profit made as a contractor, not one of them describes this profit as a key motivator for organizations to perform customer projects.
When the word “customer” is used—it actually has 184 instances in the book—it is generally ambiguous whether it refers to an “internal customer” or a real customer paying for the services and deliverables provided by an external third party.
Learning to Interpret the Language of Management
If a project manager wishes to climb the corporate ladder where the language of management is in essence distilled into one common denominator ie Money, then it is important to be able to interpret that language.
This means being comfortable with measures such as:
Feeling confident with finance professionals and being capable of asking relevant questions
Knowing how to interpret the Profit & Loss account, Balance sheet, and Cashflow statements.
Using practical ratios and measurement tools (key indicators) to assess both company and individual project performance
Preparing proposed project financial evaluations using established Cost-Benefit Analysis techniques
Imagine that your organization, which is facing the appointment of a receiver, has nominated you as project manager for a new hardware/software installation costing €20m. You are bewildered as to how this project is being undertaken in such strained financial circumstances.
The finance director says don’t worry about it as we are doing a “sale and leaseback” agreement over 10 years and it has no impact on the Profit & Loss account this year?
You are very confident in your ability to deliver the project but you are totally confused by the financing arrangements.
Many project managers should consider seeking education in financial acumen in addition to their technical, contextual and interpersonal training. They need to broaden their understanding of financial concepts and how these concepts apply to decisions to invest in projects and the expected rates of return.
Reference: PM World Journal You Manage Customer Projects? Vol. VII, Issue II – February 2017 – Let’s Talk Money! www.pmworldjournal.net Series Article by Oliver Lehmann