Project Management is probably not a topic you might expect to be speaking with an accountant about, but maybe you should be. While many accountants don’t get involved in managing individual projects, the way you handle this task can have a significant impact om your business and profitability. That’s why we, as business advisors, discuss this with our clients.
Before I go too far, let me define “project” as any revenue-generating activity you engage in. Each project will have risks that should be assessed, processes that need to be followed, and decisions that need to be made, some on a daily basis. Each of these activities can impact your overall profitability, not just the profitability of a specific project. Here are five Project Risk Management tasks that will help to increase the financial success of each project and your business.
- Start with a clear understanding of the risks, costs, and contingencies
Understanding risks better makes it easier to identify and predict potential problems over the course of a project. Being able to identify or predict these enables you to have more accurate contingencies in place before they are needed, and a more consistent approach to new projects.
- Set and manage client expectations better
Actively engaging client stakeholders in discussions of project risk isa good idea too. When they understand the risks, addressing the issues that may arise is more logical and feels more like a well-planned contingency being taken than an emergency fix to an unexpected issue. When client confidence is higher, cost overruns and margin erosion are typically lower.
- Include controls and metrics that help identify the causes of cost overruns
Identifying the cause of cost overruns in one project may not always help maintain the profitability of that project, but it can help you improve the profitability of future projects and the overall business. Just as the internal accounting controls help protect against broad financial losses, project controls provide that protection on a smaller scale. When applied across all of your projects, small-scale changes can have a major impact on profitability.
- Improve the quality of data you use to make decisions
We’ve all heard the adage “garbage in means garbage out.” That applies to measuring the work you perform for individual clients. Better decision-making always leads to better outcomes and greater profitability.
- Capture and share the lessons learned across your entire organization
Of course, the best decision-making processes need to be shared with everyone in the organization involved in the delivery of the products or services. Management must enable risk analysis to make its decisions, and promote a culture of open discussion, honesty and realism to maximize the profitability of every project and your entire company. And there are other Project Risk Management processes that are more directly linked to your accounting that also need to be reflected in your culture.
We’d be delighted to discuss them with you. Contact us if you’re interested in having that discussion.