Project Managers Should be Qualified Accountants - Essay Example

Project Management has become so Financially Sensitive that all Project Managers should be Qualified Accountants Project Management has become so Financially Sensitive that all Project Managers should be Qualified Accountants. Abstract: Finance is one of the most important aspects to be considered in the present days of economic recession. No doubt projects are carried out so that a good measure of profit can be made out of it. If the project has to be a success, then it not only depends on the project manager, but every member of the team is also responsible. This paper looks into the most important aspect of a project manager. The duty of the project manager is to closely monitor costs and budget input until Project Work Orders are closed. It is the project manager who is responsible for the financial implications of the project. This essay examines the point that "Whether or not a project manager has to be a qualified accountant" 2 Introduction: A project is a team work and every single individual has to play his own part in it to utmost faith. Finance is very important for the success or failure of a project. In fact finance is the life blood of every project. So it becomes imperative that the project manager must have knowledge of the financial aspects of the project. He will be able to direct in a better way the accountants if the project manager is a qualified accountant. If a project manager has to function effectively then he/she has to understand every aspect of cost and also the timing with regard to recognition of cost. Cost affects both the project and also the financial performance of the corporate. The project manager's duty is to be aware of the various cost perceptions and way in which they have to be reported. This knowledge will help the project manager to control the cost of goods sold which is his/her sole financial responsibility. The project manager can also control the timing of cost so that cash flow and the total cost of the project improves. Apart from this he can also affect revenue expenses and its report in the Profit and Loss statement (Project Management Journal, June 1986, p372). 3 Should or should not a project manager be a qualified accountant The present changing business environment, has forced the project managers to take on more power and responsibility in financial management. The different organizational goals which require continuous improvement in the quality of services and goods supplied to a customer through close customer relationships has contributed to this changing environment. Project managers should therefore understand and be aware of the various financial aspects of a project (Lundsten, David J 2006). The field of Project Managers is developing rapidly. This field now has its own professional body, the Project Management Institute (PMI), and its own professional certification, Project Management Professional (PMP). A project manager's task is to hand over the project on time and also within the prescribed budget. Most project managers feel they are responsible towards the firm's profitability only to the extent and limitation of controlling the project cost. But this is not so, they are capable of doing even beyond that. As soon as the various costs of a project is recognized the project manager's responsibility and effectiveness is increased. Planning the expenses and the cost of the project and execution of the same by the project manager influences a company's profit. He has to take timely action of the range of cash flow, expenses, and reporting of revenue and expenses. Thus the project manager has to be well versed and have a total knowledge in the cost accounting practices which shape the firm's project cost reporting (Project Management Journal, June 1986, p375). Scrutiny of the distinctive project profit & loss statement (Table 1) depicts how a project when sold for profit is subjugated to costs apart from the projects' cost (cost of 4 goods sold). The project manager has to look after other areas of cost as well, which will have its influence in the project profitability positively. From the table an idea of specific areas of cost which a project manager can influence like cost of goods sold, interest expense, tax expense, and profit are given. Appraisal of swap design conceptions and the employment of "trade-off' studies at the development phase of a project can results in a lower project cost. This can be achieved without sacrificing the technical quality of the project's end product. Table1. Typical project Profit & Loss Statement. The use of value engineering rationales right from the initial period of the project will also help in reduction of the total cost. This will be possible only if the 5 project manager is a qualified accountant (Hamburger, D H 1986, p375). A project manager must have an understanding of both financial management and accounting principles and practices. He/she should possess a general understanding of the various accounting practices, operations, and procedures. This knowledge should be in the area of the different methods of accounting, accrual, obligation and cost methods. The project's contingency budget is also under the control of a project manager. Contingency budget is an amount of money which may or may not be expended during the term of the project. They are set aside to meet emergency costs of a project. So it becomes mandatory for the project manager to carefully monitor this amount so that any haphazard spending can be avoided. If a portion of the contingency budget is required by a functional group then such amount or amounts should be allotted only after all facts about the expenses are obtained from the group. It is crucial that the contingency budget should be held only for its proposed reason. Problems which are not expected may finally crop up and such funds can be utilised then. Utilizing the contingency budget to fund beyond its scope is neither beneficial to the project manager nor to the management. The contingency budget is the authority of a project manager to deal with rectifications to the project work. Management has to be made aware of the actual cost of an alteration so that financing the change can depend on its true value (Project Management Journal, June 1986, p375). The project manager and project team are together responsible for the ongoing project information and correctness of estimates through out the project. It is the duty of the project manager to closely keep an eye on costs and budget till the project is closed. 6 The project manager also has to reconcile important material and labour cost discrepancies of the project. The project manager has to regularly review project costs for agreement with endorsed budgets and take proper action before overflows are found. If at all any significant cost changes or scope changes or schedule changes occur then it is the project managers' responsibility to inform the network planning, customer service engineering and scheduling and estimating. The approval of the project manager is required by all the charging organizations while charging to official project budgets. It is the duty of the project manager to deduct not permitted charges against the project budgets as and when they are discovered and formalised. At the heart of a project is the skill of the project manager in calculating, the cost of the project. This is the reason that the project manager requires a certain degree of knowledge in financial techniques and systems and accounting principles. (http://www.projectsmart.co.uk/how-to-become-a-project-manager.html). A project manager has to have a very long sight particularly when it comes to the financial aspects of a project. He/she should not only look at the initial cost involved but must also think in terms of the future returns of the project. Project managers are rather sceptical when it comes to finance in a project as they very well know that its benefits lie in the future. A project manager must have a simple trick to arrange loans when it is required for the project to be completed. But for this only outside lenders have to be approached 7 which will help in protecting their own assets. This will lead to maximizing the company's profits. All this will be possible only if the project manager is a qualified accountant. If he/she is not a qualified accountant then they would not know the technical aspects of financing and there is chance that they may be cheated by their accountants. The project manager has to take careful steps when he places an order of purchase. It represents his commitment to pay the vendor the amount agreed. Once the agreement with the vendor has been entered the project manager will be aware that the amount to be paid to the vendor will reduce the availability of funds to that extent in the project budget. When ever the cost of a project is planned or even recorded then it is the commitment of the project manager to do it with utmost care and diligence. Regrettably, many accounting systems are not prearranged to maintain project cost exposure. The value of a purchase order can be recorded only after the invoice is received. This brings disaster to the project manager's fiscal power as he/she is not in a position to manage the correct budget status at any given point of time. When no such suitable information system is available then it is the duty of a conscientious project manager to maintain personal records to track his project's commitments (Hamburger, D H 1986, p373). This is yet another reason which needs the project manager to be a qualified accountant. 8 Conclusion A project manager has no right to view cost with contempt. The cost element is an important component of a project and it is the duty of the project manager to comprehend in spite of the evident mysteries of the accounting systems which are employed while reporting cost. Cost is more than the disbursements made while executing a project. The way in which the cost is treated by the functional groups of the organisation will affect the performance of the project. It will also affect the interest element and the over all profitability of the project. Thus the meticulous project manager has to have a through understanding and knowledge of the project cost and the accounting systems which are used for recording and reporting costs of a project. It is the responsibility of the project manager to recognise the effect of time on the cost of the project and also the variations commitments, expenses, and cash flow. The project manager should thus persist on the modifications of the accounting system which may be needed to adapt to the method of project cost reporting and control requirements. Now it becomes mandatory that the project manager is a qualified accountant so that the financial aspects of a project are within its limits. Reference: 1. Project Management Journal, June 1986. 1987 by the Project Management Institute. Lundsten, David J 2006, The financial aspects of project management, Contract Management. Emily, Carr 2007, Why a Project Manager, http://www.aiga.org /content.cfm/why-a-project-managerpff=2 Hamburger, D H 1986, Three Perceptions of Project cost - Cost Is More Than a Four Letter Word, Project Management journal. Project Management Institute, 2000, A Guide to the Project Management Body of Knowledge, Project Management Institute. Read More