Project Management: Finance Perspective

Running Late: MoSPI Infrastructure Project Monitoring (~1,718 Projects)

MoSPI monitors central infrastructure projects of ₹150 crore and above (Report: August 2021 | Image Source: Livemint Newspaper)

A. What is Project Management?

Project Management can be defined as the process of leading the resources and using specific tools, knowledge, and techniques to achieve the project objectives. A Project can be of anything i.e. infrastructure projects (Construction of roads, buildings etc), development of new processes to improve the organization’s profitability, venturing into new businesses etc. Project Management focuses on:

1. How to bring & take together the different cross-functional resources.
2. Ensure that there is full coordination and corporation within them.
3. It also involves handling the disputes between people.
4. Making a trade-off between various projects objectives esp. Time, Cost & Quality.

B. What is Project Team?

The Project Team includes the people from various cross-functional teams who join the projects and once it is completed move back to their functional team. The critical players in the project teams depend upon the type of projects, for e.g. in the case of infrastructure projects it will be:

There can be a few additional roles based on the requirement of the project.

C. What is Project Life Cycle?

1. What is Life Cycle: A Project life cycle covers the phases through which each project goes from start to completion. In general, there are 4 phases:

2. What are Gate Reviews: Gate Reviews in simple terms are checkpoints to ensure project progress is in line with objectives without surprises. It helps project managers track:

• Understand current status and readiness to move forward;
• Time, quality, and cost tracking;
• Identify variances against the plan and take corrective actions;
• Identify risks in the project and develop mitigation plans.

The number of gate reviews and timing are defined at the beginning of the project and cannot be changed without prior approval of senior management. Each review highlights bottlenecks and establishes reviewed action plans.

Sample Gate Reviews Flow:

A. Project Reviews

Critical to have regular reviews with the cross-functional team to detect issues early and avoid surprises:

• 1. Weekly: Track open items, operational conflicts, and detailed line-by-line review of milestones.
• 2. Quarterly / Yearly: Broad status presented to Senior Management with intensive focus on the financial performance of the project.

B. Controlling & Monitoring

1. Work Breakdown Structure (WBS): Divide the entire project into a hierarchical WBS and assign KPIs (Quality, Cost, Time) and dedicated ownership to each element.

2. Physical Progress vs Actual Cost Incurred: For long-term projects, tracking actual expenditure against physical progress is vital. Any variance indicates slippage or cost overrun:

C. Risk Register

A Risk Register records risks and mitigation plans. Key components:

• 1. Identification: Defines risk and source of occurrence.
• 2. Quantification: Quantifies financial impact into: (a) Maximum / Risk Before Mitigation, and (b) Most Likely / Risk After Mitigation (residual risk + mitigation cost).
• 3. Classification: Categorized into technical, commercial, contractual, etc.
• 4. Mitigation Plan & Tracking: Actions, ownership, and tracking status.
• 5. Probability: Likelihood of occurrence; high probable risks demand immediate management action.

D. Savings Register

Records all cost-saving opportunities to enhance project margins:

• 1. Identification: Defines ideas and application.
• 2. Quantification: Evaluates Maximum Potential and Most Likely savings.
• 3. Review Progress & Realization: Action items, PIC, and implementation tracking.

E. Opportunity Management

1. Variation Orders: Additional activities requested by customers outside original scope offer opportunities to earn extra work and augment margins. Contract clauses defining calculation methodologies must be adhered to.

2. Options: Contracts with options allowing procurement increases at agreed prices. Exercising deadlines must be monitored and highlighted to customers proactively.

F. Working Capital Management

1. Billing & Collection: Invoices with supporting documents must be raised promptly upon achieving contract billing milestones.

2. Cash-Outs: Classified into:

• a. Capex: One-time expenditures for capability/capacity. Split into (i) Project Specific Capex (used exclusively, then scrapped/handed over), and (ii) Common Capex (used across projects).
• b. Operational: Revenue expenditures for day-to-day project activities (travel, salary, rent).

G. Contract Management: Essential Financial Clauses

H. Change in the Contract Schedule: Acceleration vs Delay

1. Acceleration: When customer requests completion prior to original schedule. Project Managers must deploy added resources, evaluate cost/quality impacts, negotiate compensation and revised quality metrics before proceeding.

2. Delay:

• a. Customer Delay: Late inputs or site access. Costs are fully claimable subject to contractual notice and detailed documentary proof.
• b. Contractor Delay: Execution/recruitment delays. Costs are unclaimable; customers may levy liquidated damages. Remedies: add resources, negotiate time extensions without cost claims, outsource work packages, or uncover savings in the savings register.

I. Sharing of Project Learnings (Post-Mortem Knowledge Transfer)