On projects and programs, all roads must lead to profits and cashflow!
Living in a highly competitive world, delivering strategic programs and projects is futile unless backed by financial alignment, cost discipline, and superior profitability. The pressures of managing costs and expenses are here to stay. Business leaders have little influence on revenue; they could, for sure, look inward – managing costs, accurate revenue recognition, and zero revenue leakage! The success of project finance management hinges, to a large extent, on the use of a top-class project finance management tool!
This blog covers:
- Project finance management challenges
- Lost opportunities due to sub-standard project finance management tool.
- Selecting the ‘appropriate’ project finance management tool.
Project Finance Management Challenges
Inaccurate and questionable project cost and revenue estimates.
The foundation of project finance management is built on immaculate and granular estimates of costs and revenue. Very simple projects could rely on Spreadsheets. But most organizations continue to develop very detailed and complicated cost and revenue estimates (with ‘factors’ based on complexity, inflation, growth, etc.) on Spreadsheet Software with a combination of ‘tough-to-trace-and-track’ formulae and macros – depending completely on the person who developed it. When errors occur, finding the root-cause can be a hair-rising experience, not to forget the wasted effort and stakeholder anxiety. Think of managing revisions along with version comparison – hell is not very far!
Benefits of a top-class project finance management software
- Streamline the process of cost and revenue estimates.
- Completely digitize the process of project finance management.
- Manage granular and complicated estimates with ease.
- Ensure complete forward and backward traceability of estimates.
- Create, compare, and analyse multiple versions of cost and revenue estimates.
- Significantly increase the efficiency as well as the productivity of teams working on cost estimates.
Lack of a robust project financial feasibility analysis.
New project evaluation focuses a lot on the financial viability. Depending on the duration, size, and complexity of projects, the process of project financial evaluation can be overwhelming. Organizations consider a host of parameters such as Pay Back Period, Return on Investment, Net Present Value, or Internal Rate of Return before approving project funding. On the revenue forecasting aspect, teams need to build comprehensive business cases with detailed inputs on expected sales units, price points, product growth, market share, and others. Further, financial feasibility analysis must be ‘accurate’ and ‘swift’ to win customer deals and capture market share. Most organizations approach this exercise in a lackadaisical manner, leading to disastrous financial decisions.
Benefits of a top-class project finance management tool
- Develop financial feasibility templates based on project value, duration, complexity, and organization-specific standards.
- Define workflows with deliverables, decision-nodes, and escalation points for efficient project financial feasibility.
- Completely digitize the process of project feasibility analysis and decision-making.
- Enhance the speed of conducting project financial feasibility analysis.
- Respond to customer RFPs in top-speed.
Poor collaboration driven by spreadsheets and emails approach.
Organizations continue to struggle to foster quick collaboration from multiple cross-functional teams. The reliance on standalone documents (Spreadsheets, Word documents, etc) puts a question mark on data integrity and lost productivity. Decisions require too many meetings and exchange of emails. Reliance on emails for reviews and decision-making slows down the entire process and leads to senior management frustration.
Benefits of a top-class project finance management software
- Eliminates the need for offline documents based on software for Spreadsheets, Word, and Emails.
- Completely digitizes the review and decision-making process.
- Fosters real-time collaboration by cross-functional teams.
Tracking project costs: Planned vs. Actuals.
The hard part is getting customer projects, while the harder part is ensuring that the project delivers expected profitability. Business leaders often complain that projects do not deliver value as envisaged at the proposal and contract stages. The reasons are obvious: (a) disconnect between the sales and project delivery teams, and (b) lack of a systemic rigour to track actuals vis-à-vis plan. The result – senior management frustration of not delivering profitable projects.
Benefits of a top-class enterprise budget management software
- Provides a user-friendly platform to report actual costs.
- Ensures financial discipline through rule-based alerts, notifications, and escalations for non-compliance.
- Offers real-time comparison between planned costs and actual costs.
Inaccurate and missed revenue recognition.
Business leaders often observe significant gaps between work delivered and revenue recognized. There could be various reasons: (a) disconnect between project deliverables completion and revenue recognition (b) delayed project team communication with finance teams for recognizing revenue (c) lack of team awareness about finance-related aspects. Further there are situations of scope creep escaping the process of revenue recognition – leading to reduced project profitability.
Benefits of a top-class project finance management software
- Automates the deliverable completion (percentages) with revenue recognition.
- Relieves the project team of additional communication with finance teams.
- Finance teams can trigger revenue recognition based on appropriate business and finance rules.
- Zero percent lost revenue.
- Uncompromised project profitability.
Inefficient project cashflow management.
Project cashflow management is directly linked to revenue recognition. When there is either a delayed or lost revenue recognition, the project cashflow becomes the biggest casualty. Imagine an organization numerous projects and programs with inaccurate or lost revenue recognition – the negative impact to business cashflow is tremendous!
Benefits of a top-class project finance management software
- By directly linking deliverable completion with revenue recognition, enterprises can proactively manage cashflow.
- By rolling-up cashflow of multiple projects and programs at a business unit or enterprise-level, leaders are better placed to manage cashflow.
- Financial metrics consistently stay in the ‘pink of health’!
Data inconsistency by disparate systems (ERPs, Project Management, Accounting).
For historical reasons, most organizations manage their day-to-day operations on disparate applications – be it ERPs, Project Management, or Accounting. In such a scenario, it is not uncommon to observe leaders’ frustration of dealing with multiple versions of data. Teams struggle in vain to reconcile different data versions. Critical business decisions that are based on ‘low integrity data’, have catastrophic business impact.
Benefits of a top-class project finance management software
- Seamlessly integrates project management with ERPs and Accounting applications.
- Ensures data integrity through single version of business truth.
- Drives decisions that are swift and immaculate.
Lost Opportunities due to sub-standard Project Finance Management Software
- Approving financially unviable projects.
- Questionable project financial data integrity.
- Delayed and ineffective decision-making.
- Lost revenue recognition and missed billing.
- Significantly lower profitability than estimated.
Investing in a Project Finance Management Software
With so many commercial-off-the-shelf (COTS) project finance management available, how should project leaders go about understanding, evaluating, and finally selecting the ‘appropriate’ one? The below-mentioned pointers are a good starting point.
- Designed for “your” industry, project type, project approach, methodology, and business processes.
- An end-to-end solution that addresses all the dimensions of project financials.
- Seamless integration with other enterprise applications.
- Must completely digitize your project financials landscape.
Business impact of a top-class Project Finance Management Software
- Digitize your entire project financials cycle.
- Strategic project funding decisions.
- Holistic project budgeting and cost control.
- 100% revenue recognition.
- 0% revenue leakage.
- One version of financial truth.
- Improved financial governance.
- Higher project profitability and ROI.
TouchBase Financials is created with the strategic design principles of high configurability and holistic solution and is backed by capabilities to suit the requirements of modern-day professionals across diverse industries.
