Arm yourself with an approved financial model before starting the project

Before you pitch a project of your own, or begin implementing someone else’s it is critical that you produce a financial analysis that justifies the time, people and money you will spend on the endeavor. If you can’t show a return that’s higher than the company’s cost of capital, you will find yourself with a less than enthusiastic reception from decision makers. If you’re smart, you’ll take a look at existing projects and programs and demonstrate how your proposal exceeds them in financial payback.

What do you do if your expertise is in implementation and not financial analysis? First, make friends with the financial analysts in your company. Find out what method they use in their financial analysis documents. Perhaps they use Internal Rate of Return, Net Present Value Analysis, SWOT (Strengths, Weakness, Opportunities, Threats) or a variation of Benefits/Cost Analysis. Sit down with them and have them walk you through their models. Ask them if they would be willing to provide you with a template that you could use to populate with raw numbers during the discovery phase of your projects. Show interest in what they do and let them know that you intend to do as much of the legwork as you can in your next project before asking them for help. Most project managers drag a financial subject matter expert into their project team and expect that person to put together a complete financial model. This is particularly annoying to most Finance SMEs because they, like other team members, are usually only knowledgeable about their own end of the shop. In reality the project manager is the person who understands the big picture and is in the best position to come up with the raw numbers for the financial model. It makes sense that the PM does the research and puts together the first pass. Once the Finance people see that you are serious about this approach, they will become very good friends of yours. You will be amazed at their willingness to polish your preliminary model and at their enthusiastic support of your proposal.

Arming yourself ahead of time with an approved financial model provides several benefits. You will have neutralized potential questions or objections from the Finance group. Your project will appear to have the stamp of approval of the Finance executive. When senior management are looking for a project to criticize or cut, they will likely give yours a pass and focus on projects that have not been so solidly financially justified. If the project hits bumps or doesn’t end up producing as well as originally planned, Finance and the executives will share some of the responsibility with you and your team. Failed or troubled projects that Finance has blessed are likely to be put to rest without recriminations or lasting damage to the project manager. Think of the financial model as an insurance policy for your project management career. Don’t start a project without this essential executive blessing.

ÓCopyright Tim Kress, PMP 2004