Project Financial Management

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.

Involved activities:

  • Accounting,
  • Financial audits,
  • Cash-flow analysis,
  • Financial reporting,
  • Ex-post evaluations.

Project Financial ManagementWhat is Financial Management?

To answer the question what financial management is, I recommend reading this financial management book. It is for good reasons among the highest ranking books on Amazon.

The Amazon book description:

The only text to strike a balance between solid financial theory and practical applications, Brigham/Ehrhardt’s FINANCIAL MANAGEMENT: THEORY AND PRACTICE, 15th Edition gives you a thorough understanding of the essential concepts you need to develop and implement effective financial strategies. The book begins with a presentation of corporate finance fundamentals before progressing to discussions of specific techniques used to maximize the value of a firm. It also explores the recent financial and economic crises and the role of finance in the business world. With its relevant and engaging presentation, numerous examples, and emphasis on Excel usage, this text serves as a complete reference tool for you in your academic or business career. The 15th edition is also available with learning solutions such as MindTap Finance, Aplia, and CengageNOW to help you to become First in Finance.

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Download area Project Financial Management Templates

Free Project Financial Management Plan Template

Name:Project Financial Management Plan
Prepared by:Marc Arnecke, PMP
Subject:The project financial management plan is a component of the project management plan that identifies all financial requirements of a project and the means to finance them.
Last Modified:25/06/2018
Link:download Project Financial Management Plan Template

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