As many of you are aware, UMT has long been in the project financial governance space, and for the last several years has been proud to offer a tool that brings financial governance into the project portfolio management fold.
Often, when working with clients in designing their project financial governance processes, the question arises of how such a system would interact with an existing Line of Business (LOB) application such as SAP or PeopleSoft. The LOB application is the official enterprise system of record and, as such, must contain the latest and greatest financial figures.
So what purpose can be served by effectively taking those figures and copying them to a secondary data repository? As any enterprise architect would tell you, unless doing so enables a specific strategic capability, data should never be replicated into a secondary repository.
First off, let’s look at simple reporting. One common scenario is for project managers to desire to capture accounting data in the same interface as project data. For this purpose, creating a second data repository actually defeats the point, as we want for PMs to have access to the latest and greatest financial data. In this scenario, we may be better served leveraging the rich SharePoint Business Intelligence features to surface accounting data through the use of Excel Services, SSRS, or PerformancePoint.
But what happens when we move beyond simple reporting? Let’s take a look at a couple of scenarios that are enabled by the Project Essentials tool:
Preliminary Estimate Development – Often, as projects are developed, an initial business case is developed. This financial business case may be captured in a project request form, a request database, an estimating tool, and occasionally within the PMIS. Rarely is this sort of data captured in an information system that allows roll up and analysis. Even rarer would be when this sort of data is captured within a LOB accounting application.
The general workflow we’ve seen is for the initial estimate to be prepared outside of the accounting application and then imported into the application upon project approval and funding (which then allows the organization to utilize portfolio analysis and optimization techniques).
Status Reporting – Nothing indicates the difference between project management and accounting more than status reporting. This really hits to the heart of what Eric Uyttewaal once claimed in his book on project modeling, “The difference between accounting and project management is that accountants are focused on the past while project managers are focused on the future.”
Common scenarios in status reporting include the fact that the accounting application typically doesn’t display actual costs until the invoices for the work have been received. This might happen anywhere from 30 to 90 days after the date of the actual work. From a status reporting perspective, the project manager is better served depicting an unofficial “incurred” cost in the status report for work performed that has not yet been invoiced.
While this may violate basic accounting best practices, the reality is that this practice enables more effective status reporting and emphasizes the difference between the world of accounting and the world of project management.
Benefits Management – Another key aspect of project portfolio management lies in defining project financial benefits. The general model involves defining timephased financial benefits before approving the project. Upon project closeout, or at a predetermined period thereafter, those same benefits will be reviewed to assess whether or not the project was successful.
Since benefits are very often hypothetical values, they often have no place within the data structure of an accounting system. Hence, benefits tracking is often relegated to the PMIS.
Integration with Project Management Workflow – It’s a lot easier to integrate with your project management workflow when you can replicate at least some of your accounting data into a PMIS. For example, imagine that you would want to take a snapshot of all of your actuals as well as project cost forecasts at each stage gate approval. This would allow you as an organization to assess how much you’ve spent within each stage gate, and what the forecast looks like upon the conclusion of each phase.
While a LOB accounting system will allow you to roll back time to identify the value of specific elements at any given period, it is often difficult to map those periods to the phase gates approvals in a true project management solution. How could you determine how much you’d spent at the end of the Build stage from your LOB application without first looking up the date that you exited Build in your PMIS, and then cross referencing that with your LOB estimates?
Performance Management – And last but not least, what about financial requirements for performance management? Often times, the project performance must be measured against various baselines. For example, we may have a data structure within our accounting system to capture approved annual planning budget. We may also have a structure to capture our current project forecast. If a project has been approved out of cycle however, the annual planning figures will be zero. We need to capture a snapshot of the forecasted cost at the time the project is approved to ensure that we are tracking against the appropriate financial baseline.
Looking for something a bit more substantial on the topic? Check out UMT Chairman Mike Gruia’s white paper on the need for project financial governance.