According to the World Bank Financial Management Manual, project financial management is a process which brings together planning, budgeting, accounting, financial reporting, internal control, auditing, procurement, disbursement and the physical performance of the
project with the aim of managing project resources properly and achieving the project’s development objectives.
As this website is based on the standards set by the PMBOK®, my focus is to cover hereafter those parts of project financial management that are rather not taken into account in the project cost management according to the PMBOK®.
Definition of Project Financial Management
The PMI™ defines project financial management in the Construction Extension to the PMBOK® as:
Project Financial Management determines how the project will be financed, including the processes to acquire and manage the financial resources for the project. It is more concerned with revenue sources and monitoring net cash-flows for the construction project than with managing day-to-day costs. (PMBOK® Guide, Construction Extension 2016 Edition)
Therefore to continuously monitor the project finances and to ensure the company’s financial capacity to complete the project are the most critical finance manager jobs. This also includes the assessment and monitoring of financial risks and the implementation of suitable financial risk management strategies.
Project Financial Management Processes
The PMI™ defines the processes in the Construction Extension to the PMBOK® as:
- Project Financial Management Planning
- Project financial management planning is the initial phase of financial management. It identifies and provides all financial requirements for the project and assigns financial management roles and responsibilities.
The goals of this financial management process:
- Identification of sources of funds and alternatives,
- Investigation of possibilities of short-term financial fluctuations,
- Examination of the economic environment,
- Development of financial analysis tools,
- Evaluation of the most suitable legal entity,
- Evaluation of contractual requirements,
- Examination of financial impact risk factors,
- Tax and other financial factors planning.
- Project Financial Management Monitoring & Control
- Estimate cost is the process of developing and approximation of the monetary resources needed to complete the project works.
- Financial audits,
- Cash-flow analysis,
- Financial reporting,
- Ex-post evaluations.