Step 2: Financial management

Part of your project management job is to ensure that the project is completed within the allocated and approved budget.

Budget management is concerned with all costs associated with the project, including the cost of human resources, equipment, travel, materials and supplies. Increased costs of materials, supplies, and human resources, therefore, have a direct impact on the budget. Just as task duration estimates are tracked carefully against actual costs, the actual costs must be tracked against estimates.

The same analysis should be conducted and the same questions asked: What other aspects of the budget were constructed based upon these estimates? Changes to the scope of the project will most often have a direct impact on the budget. Just as scope changes need to be controlled and managed, so do changes to the project budget.

It is the responsibility of the PM to closely monitor the financial performance of the project and take responsibility for addressing cost-related issues as they arise. In addition, you should always be aware of the effect your decisions may have on the total cost of the project, both before and after the product or service is implemented.

Roles and responsibilities

There at least three key players involved in the project’s financial processes.

As the PM, you are ultimately responsible for ensuring the financial baseline is established and for reviewing and validating monthly financial results. Headquarters staff currently accomplishes many of these tasks. Your primary responsibilities, depending on the type and complexity of your project are:

Set-up your project in your Company’s accounting system (e.g., Deltek, PeopleSoft, Excel) – Carefully proof for errors and correct immediately.

Understand labor rate composition

  • Review and validate monthly financials
  • Generate and maintain monthly forecasting template
  • Generate EAC for FFP contracts
  • Participate in budgeting process
  • Review or initiate IFRs
  • Review accrual tracking and estimating
  • Prepare procurement requisitions
  • Develop a time phased budget

A Billing Administrator will set-up the project financial baseline, prepare and submit invoices, and resolve any invoice problems.

Depending on the size and scope of your project, you may have a Project Control Analyst who plays a major role in monitoring progress by supporting you with the business aspects of the project such as establishing the WBS, opening job numbers, and establishing the budget baseline. This support might have been included in the budget estimate or might be an overhead expense. Otherwise, you will be responsible for fulfilling this role. It includes the following tasks:

  • Financial project status data
  • Forecasts
  • Re-planning and revisions to the baseline
  • Internal and customer reports
  • Financial aspects of project reviews

Cost accounting tasks

There are several cost accounting tasks that you will be responsible for either initiating or supporting during the execution of your project.

Organizational overview

  • Your company organization
  • Rates
  • Accounting org chart
  • Accounting calendar
  • Department codes
  • Indirect departments

Time and Labor

  • Charge codes
  • Approve timesheets
  • Approve labor adjustments
  • Ensure employees are compliant
  • Labor qualifications forthcoming
  • Automated sub timesheet systems

Expense Reports

  • Approve expense reports/cash advances/travel authorizations
  • What is allowable/reimbursable on your contract?


  • Approve Req’s
  • Receive materials
  • Approve IFR’s

Job Status Reports (JSR)

  • Closing notifications
  • Accruals
  • Burn rates
  • Approve JSR’s
  • How to read a JSR


  • Company reporting dashboard

As you can see, there are quite a few terms and activities that impact your ability to successfully monitor and control the financial aspects of your project. The finance department can assist you with each of these tasks. Also, a cost accounting training program is available, too.

Cost components

As PM, you will need to understand the components that make up your labor and indirect costs (see Figure).


Different indirect rates will be applied to the labor charges on your project. This information is very company proprietary and competition sensitive as are project status reports. All company overhead, G&A and other rate information must be protected either by shredding or placement in a locked file. This includes reports that reflect vendor and subcontractor billing rates. Your group’s program controller can explain these cost components and how they impact your project financial baseline.

Charge numbers

As a your company PM, you should understand how the company assigns charge numbers. You should also familiarize yourself with your company’s basic financial terms including account, business unit, department identifier, burden rate, project identifier and activity identifier.

Earned value management

Earned value has proven to be an effective analytical methodology to identify project cost and schedule status, especially on more complex projects. However, it is important to make sure to incorporate in pre-execution planning and budget the necessary resources and schedule time to accommodate earned value management.

Earned value management is a schedule and cost system used to assist Project Teams and customers in assessing progress, provide early warning for corrective action and estimates of future schedule and cost based on current progress.

Cost control metrics commonly used, at a minimum, to measure progress are:

  • Cost variance
  • Cost performance index
  • Cost versus funding
  • ODC costs versus plan
  • Remaining budget versus budget at completion
  • Subcontractor cost variance

The information provided in this subsection is only a high level overview. More specific guidance on earned value can be found at online project management sites and in standard earned value management training courses. Here is an example of Planned versus Actual Project Costs:

53 - Planned versus budgeted costs

Financial approval

Most companies have a financial approval process with several steps that must be followed to ensure that your company continues to comply with government regulations. PMs should make sure they are very familiar with this process. Your financial department can walk you through this process.

There are usually three key players in the management of the cash flow process: you as the project manager, the Billing Administrator assigned to your contract and the contract manager. Your company’s goal is to recover all contract costs through billing. Contract costs are all direct costs specific to a contract, plus indirect cost allocations.

In general, it consists of the following activities:

  • Contract set-up
  • Time sheets (manual or automated)
  • JSRs and
  • Reviews and email approvals

– Mike Lisagor


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