Financial projections | Duties Of A Project Manager

In this blog, I want to dive into the responsibilities of a project manager in relation to financial projections and how you can actively involve your team in the process. Financial projections can often feel like a daunting task, but when the entire team takes ownership, it becomes much more manageable and can lead to remarkable results.

Getting the Information You Need

Let’s start by addressing the basics. How do you gather the necessary information for your financial projections? What do you need to review, and how often? 

This is crucial because your ability to make informed decisions will heavily depend on the quality and frequency of the data you’re working with. Ensuring that your team is on the same page with timely, relevant information is the first step in successful financial management.

A Story From Lean Tact

To give you some context, in our organization at Lean Tact, we’ve seen significant growth over the years, expanding to a team of 47 people. With this growth, managing our finances has been both a challenge and a constant exercise in adaptability. 

Our expenses typically exceed projections by $10,000 to $20,000 each month. This isn’t ideal, but it’s a reality of running a service-based business. We often find ourselves bridging the gap between projected and actual revenue, with only a three-month backlog for our expenses.

Recently, we made a strategic move to pair Carol, our Director of Operations, with Ryan, our CFO. Their task? To keep a constant eye on our financial projections while aligning our sales and marketing teams to bridge any financial gaps. 

The result has been a more proactive and accountable team, all working together to ensure financial stability. And guess what? The same strategy can work for your project as well.

Two Key Points for Effective Financial Management

There are two essential things you must do to manage your financial projections effectively:

1. Make Financial Projections Visible: Ensure that your financial projections are in a format that everyone on the team can easily see and understand. This transparency fosters accountability and better decision-making across the board.
2. Monitor Finances Regularly: Make sure you’re reviewing the numbers weekly, or at the very least monthly, to make real-time decisions. This keeps your team agile and responsive to any changes in the financial landscape of your project.

Common Pitfalls for Project Managers

Now, let’s address a common mistake many project managers make: relying solely on job cost reports. While these reports can provide valuable insights into budget categories like utilities, travel, and meals, they’re not sufficient for effective financial management. Simply slashing budgets without a clear understanding of which expenses are necessary and which are not can be detrimental to the success of your project.

Investments vs. Expenses

One key distinction that’s often overlooked is the difference between investments and expenses. It’s crucial to cut unnecessary expenses, but never at the cost of eliminating valuable investments. For example, investments in Building Information Modeling (BIM), planning, and simulation can save money in the long run. These proactive measures are essential to the overall success of your project and should not be sacrificed in the name of cutting costs.

Managing Subcontracts and Contingencies

When managing financial projections for subcontracts, you’ll need to track several key figures: the total dollars allocated for subcontracts, the projected remaining buyout, and the percentage of buyout contingency. Additionally, you must keep a close eye on potential exposures, such as change orders and risks, as these can quickly eat away at your budget if not managed properly.

The Importance of a Comprehensive Financial Overview

To manage your financial projections effectively, you must have a comprehensive understanding of all the numbers involved. This includes labor gains, insurance gains, rental income, and general conditions. Having this big-picture view allows you to make informed decisions that will lead to a successful project outcome.

Gross Profit Targets and Strategic Planning

At Lean Tact, we always aim for a gross profit of 4-6%. Knowing your gross profit target is crucial for aligning your financial projections with your overall business strategy. If you know what your target is, you can form a strategy that ensures you meet it, leading to a successful project and a thriving business.

Conclusion

At the end of the day, managing financial projections as a project manager involves much more than just balancing the books. It requires strategic thinking, regular monitoring, and a clear understanding of the distinction between investments and expenses. By implementing these strategies, you’ll be better equipped to keep your project on track financially.

If you need help tracking your financial projections or forming financial strategies, we can provide assistance with project management services. Hopefully, this blog has given you the tools you need to succeed. Let’s keep pushing forward!