The results are the financial plan of the project, the legal entity and the expenditure authority. The financial plan of the project consists of a clear identification of the financial needs and the means of financing them. With this comprehensive document, all parties must understand by whom and when all necessary equity, debt and insurance must be provided. The legal entity is the definition of the legal form that the project will take; It can be a partnership, a company, a trust, a joint venture. or a combination of them. Spending authority is generally determined by organizational policy. It should also be taken into account that dual signatories as well as the level of expenditure and approval must be taken into account. Most projects do not start until a thorough analysis is done of the amount of funding needed to complete the project and the return on investment. These surveys help determine the cost base of the project.
However, once the project is approved, funding must be in place to begin work. There are many ways in which projects receive their funding. Some projects receive all the necessary funds in advance and the project manager carefully manages the funds throughout the project lifecycle. Many projects receive phased funding based on milestone phases. The project team and the proponent must determine the most efficient way to allocate project funds and include the identified reserves. The feasibility study is a study conducted to determine whether the project can be profitable or whether the proposed payments are sufficient to cover costs and reasonable profit. Measuring cash flow is a great way to determine profitability. Cash outflows are determined as expected payments to subcontractors, suppliers, fees, insurance, taxes, direct labor, and support staff. The analysis of income and expenses determines net cash flows (inflows minus outflows) and core financing requirements. In project management, project managers need to know exactly what their funding needs are before starting the project. There are two types of funding management requirements, including the full funding requirement and the period requirement. The total financing requirement is defined as the costs specified in the cost baseline.
This also includes management reserves. Accrual financing requirements are defined as annual and quarterly payments. Both funding requirements are derived from the cost base. Urli, B., & Urli, D. (2000). Project management in North America: stability of concepts. Project Management Journal, 31, 33–41. PMI`s Construction Extension to the PMBOK® Guide–2000 Edition states: “Typically, the owner determines the need for a new plant or improvement, and then conducts another study or has conducted another study (often referred to as a feasibility study) to determine the feasibility and form of the project that will achieve the best or most cost-effective result, more clearly defined. The study usually includes an examination of alternatives that can meet the needs (value management) and the desired form of funding (financial management)” (PMI, 2003, p.
14). This extension goes on to say that the owner usually uses the service of an engineer to do most of the work. Being able to calculate return on investment (ROI) is a long-term problem, and there are also long-term solutions. Although the formulas are quite simple, the truth is that maintaining them correctly is not such an easy task. The projected monetary benefits must be weighed against the costs of the project. We generally refer to this ratio as the benefit-cost ratio. “Project funding” is a well-known and frequently covered topic that can be easily searched for in any good library. In amazon.com, you will find nearly 3,774 results, if you search for manuals on the subject, and if you “google” them, you will find about 1,710,000 results. However, if you search for “fund the project” instead, you`ll only find about 1,768 results on amazon.com and 159,000 results using Google`s search engine. Since www.amazon.com also look back, there is a big difference between the information available if you want to look at “project finances” and “project funding”. Contractual requirements are important because they are related to the client`s ability to provide the expected cash flows for the project and the legal impact that may have occurred. The economic environment aims to ensure that the project manager takes into account market risks.
The Program Charter authorizes the program management team to use organizational resources to deliver the program and links the program to the organization`s business case or strategic priorities, in accordance with the Project Management Institute`s Standard for Program Management – Second Edition (PMI, 2008c). In terms of how funding is managed, projects and programs seem to share the same concepts. Even the treatment of components within program management explains that the business case developed for each of the projects that deals with the investment is the responsibility of the program implementation phase. Program funding is required to support the program throughout the start-up and planning phase until costs and budgeting are explored later. Benefits are the tangible or intangible revenues that the exploitation of the project proceeds will generate. Forecast project costs to be paid, derived from the cost baseline for total or periodic demand, including projected expenditures plus projected liabilities. And the calculation of ROI is also fundamental, because it is the way to measure the contribution of each project to organizational performance. The return on investment makes sense for prioritization between projects and improves selection processes by focusing on results. It also increases management`s sensitivity to project management.
In many projects, the area of project funding is considered to fall within the sphere of influence of stakeholders and is therefore not directly addressed by the project manager. But without project management tools and techniques, and without properly studying the cost of the project, it is impossible to know exactly how much money the project will need and the cost base that will affect the project`s financing needs. The problem of calculating these three values has been studied a lot. Each of the financing methods used to analyze cash flows, such as net present value, internal rate of return and amortization period, depends largely on the correct calculation of cash flows. Every beginner knows how to do the math after establishing it. And projecting them correctly onto the timeline is one of the most difficult tasks we may need to tackle. .