Readers of this blog are probably familiar in concept with UMT’s flagship product, Project Essentials. You’ve probably heard the elevator pitch and are aware that it has something to do with financial governance. Maybe you’ve seen the demos. Maybe you’re currently using it. But what does financial governance actually mean in the context of project portfolio management?
In a previous post, I talked about how Project Essentials can complement your corporate accounting system. In this post, I wanted to introduce a couple of fundamental concepts related to financial governance as it is implemented within the Project Essentials tool. My hope is that this may demystify some of the bits that are under the hood and give my readers a better entrance point to conceptualizing what capabilities this software can actually enable.
Enterprise Financial Types
The fundamental building block of the solution is the Enterprise Financial Type, or EFT. An EFT is a collection of financial settings and dimensions that an organization wants to track. For example, Cost is an EFT. Cost is typically tracked in terms of the approved budget, current estimates, and my actual cost to date.
But what about financial benefits? Benefits also can be tracked in terms of the same dimensions, i.e. approved benefits, current benefit estimates, and my actual benefits to date. Benefits are typically tracked along a different timeline than Costs though, and as such we would treat Benefits as another EFT.
With Project Essentials, you can essentially create as many EFTs as you require. For example, cash flow, contracted costs, resource capacity planning….all of these can be created and tracked in terms of the original estimate, current forecast, and actuals to date.
How do we break down the EFT into more detail? As discussed above, one of the ways we break down the EFTs is through the use of Financial Dimensions, the standard ones being original budget, current forecast, and actuals to date.
We can easily add dimensions as well. For example, let’s say I have two levels of approved budget: the version that’s entered in SAP for work that is part of my annual budgeting cycle, and the version that is not in SAP, as the project was not allocated funds from the annual planning cycle.
In this case, I can create a new financial dimension. I can have one that captures the allocated funds within SAP – and another that tracks the amount approved for the project, i.e. the unplanned approved budget. For these projects, for the Cost EFT, I can now have four dimensions: Planned Budget, Unplanned Budget, Current Estimate, Actuals to Date.
So far so good. We have Financial Types and we have Financial Dimensions, how do we break it down even further? I can now capture each of those financial dimensions within each time period per an assigned Cost Breakdown Structure. For instance, I can capture my approved CapEx and OpEx for May 2013 in the budget dimension – and compare it to the matching CapEx and OpEx entries in my Forecast Estimate for the same time period.
The above example is just a simple one. We regularly work with many organizations who define their cost breakdown structure to a far more detailed level with hundreds of specific nodes to track cost against.
…which brings us to workflow. Project Essentials takes all of the above and ties it to your project development workflow, so we can define what level of granularity is required at each workflow stage, or whether the estimates should be entered in multiple currencies and aggregated into Euros, or when the budget should be locked down and subject to a change approval process…or any one of a host of other typical financial governance activities that take place routinely in a project lifecycle.
That, in a nutshell is the financial governance that we enable: simple concepts adapted to match the complexity of real world operations.
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