Resource Index > Project Management Activities > Financial Analysis and Cost Management

Financial Analysis and Cost Management

Every project manager should understand the business case for a project and present it to the team so they will understand and apply it appropriately. The project business case informs the tradeoff decisions and choices, as well as go/no-go decisions at critical points like project initiation and reviews. You don't have to be a financial whiz-kid or a tenured business analyst to understand and apply valuation and cost analysis to your project decisions. By including the right financial metrics and watching the right budget items, anyone can become a business-savvy team member.

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Example Project Budgets and Analysis
The examples below range from simple case studies of real projects to model budgets and tracking plans from practicing project managers.

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  • Are These Benefits Real?
    Niel Nickolaisen describes what it looks like when the projected benefits on paper don't match the project reality. With a little training and explanation, people soon catch on to the difference between real and unreal benefits.
  • How Much Quality Can We Afford?
    Sure, it might be nice to build a higher quality product. But how much quality can we really afford? Well, let's break out our Cost of Quality Calculator and try out the numbers. Alan Koch illustrates how the math works out as we add and manipulate hours spent reviewing code and requirements.
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  • Tools and Equipment List
    This template provides a format for thinking through and documenting the tools (e.g. hardware, software) and equipment needed during a project for testing, prototyping, etc. It helps the team get related costs into the budget, plan the proper timing and quantity availability, and track status.
  • Spiraling In: An on-schedule medical device project that failed miserably anyway
    This team's behavior was "by the book" -- they followed their development process and solved critical problems in the high-risk design. However, the entire team (including senior management) forgot to monitor the project's "dashboard" -- the key requirements without which the product will fail to achieve its business goals.
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  • Project Budgets and Cost Tracking
    Spreadsheet formats for documenting the projected costs of a project and for high-level cost tracking.
  • Budget for Project Management Support Group
    An example budget for non-salary expenses for a chartered PM support group.
  • Benefits Realization Plan
    Don't settle for a vague sense that the project was a good thing. This plan documents the expected benefits of the project, details how they will be measured, and captures those measurements for later assessment and use in lessons learned.
  • New Product Business Plan
    This template for a Product/Project Business Plan describes a new project for inclusion in the corporation portfolio of projects.
Step-by-Step Guidelines for Analyzing Project Costs and Financial Impacts
The articles and guidelines below provide instructions and templates for conducting value-added financial analysis on a variety of projects.

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  • Quality That's Worth the Cost
    Quality may be an intangible, but that doesn't meant it has to be invisible. Here's how to manage quality by the numbers.
  • Project Profitability & Cash Flow
    Morley Selver discusses project profitability and financial cash flow -- not the monthly cash flow number you have to report to management, but the overall project financial cash flow and how it fits in with the capital budget and project profitability.
  • Running the Numbers
    So you would like to try building a financial model for your project, but you are worried that you will have to spend hours staring at a spreadsheet full of arcane equations to do it. Not really. Kent McDonald explains how to build a simple but useful financial model, and demonstrates some of the ways it helps with project decisions.
  • Cost Management Past, Present, and Future
    Kent McDonald reviews the different perspectives involved with managing project costs in terms of past, present, and future. You need to understand all three perspectives to truly manage the cost of the project effectively.
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  • Review Checklists: Preliminary Design Review
    Checklist for Preliminary Design Reviews (PDR), to allow the Project Leader and team to suggest alternatives in product performance, time-to-market, product and project cost, and risks.
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  • Project Business Case
    Create a compelling justification for your project by documenting the anticipated costs and ROI, in context of all the reasonable alternatives.
  • Opportunity Screening Worksheet
    Determine if an idea is worth enough to the company to commission a product development project. Your management team can use this worksheet to evaluate a number of factors and identify the important issues.
  • Cost-Benefits Analysis
    Is your project worth the cost? Have you included long-term costs and intangible benefits in your decisions about your project's value? This template walks you through consideration of all the angles, and a careful evaluation of the results.
  • Calculating Expected Monetary Value (EMV) of Risks
    It's one thing to make a list of risks, and another to be quite clear about just how badly a particular risk could impact the project in financial terms. This template helps teams assess the financial impact of a given risk and determine how much time and money to spend avoiding it.
  • Impact Analysis
    Capture and evaluate the impacts to business areas, systems, and external organizations -- both positive and negative -- of a given solution or project change. An Impact Analysis will help you correlate all those variables and determine the best course of action.
  • Late Cost Per Week Worksheet
    This simple worksheet will help your team calculate and communicate the financial impact to the organization if your project slips by a week… or two weeks… or more.
Other Options
Typical Planning Issues and Answers to Common Questions
Financial analysis of projects can raise all kinds of issues around earned value, hidden costs, strategic return, strategic return, and tradeoff decisions. These resources will help.

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  • Earned Value Makes Headlines!
    Who cares about this earned value stuff anyway? The U.S. Office of Management and Budget, for one ... which means we should care too.
  • Show Me the Reports
    Ensuring we meet organizational objectives for the lowest cost possible requires thorough analysis and due diligence when choosing a vendor. Ann Drinkwater proposes several areas to consider when choosing a vendor for your project.
  • Managing an Unexpected Windfall
    Every dollar in your project budget has a story behind it -- a story and a check-writing stakeholder. We'd all do well to understand that story.
  • Hidden Contracts
    Keep your eyes peeled for unanticipated delays and costs like utility requirements, government coordination, permit delays, and more.
  • Strategic & Business Planning: a Project Manager's Role
    When your company does "strategic" planning or yearly budget planning, do they come to you and want you to estimate the expense budget, the capital budget, the headcount and schedule for one or more projects in a single day? How do you do this quickly and but still come up with estimates that you can live with?
  • Reducing Your Cost of Quality
    Ways to assess and communicate the true Cost of Quality, and how you can reduce it.
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  • Rescuing and Revitalizing the Problem Project
    Time-to-market demands can't be ignored, so how do you course-correct, get back your momentum, and succeed in spite of it all? This paper describes how to pinpoint and fully understand the project's past problems, revitalize your plan and your team, and get that product out the door.
For Subscribers
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  • Agile Technique Brief: Project Value Models
    Learn to reach agreement on the project purpose, risks, constraints, assumptions, and more, and use that information to decide which projects and features to develop, prioritize them, and keep the priorities consistent with changing circumstances.
  • Planning and Scheduling: Estimating Work and Costs
    A guideline on how to estimate effort, duration, and costs for items in the work breakdown structure (WBS). It includes a table used for assigning task estimates. Fourth in a series.
  • Estimating Process and Methods
    This guideline provides an overview of estimating methods for generating detailed project schedules. It includes a brief description of the purpose, goals, and process of estimating, as well as eight specific estimating techniques for the project manager and project team.
  • Plan Development: Optimizing Project Plan Tradeoffs
    This template provides guidelines for making trade-offs and optimizing the plan after the first pass base schedule has been developed, to address conflicts discovered among the scope, time, and resources/costs. (Sixth in a series.)

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