CFOs Use Project Management Formulas to Achieve Success in their Business
As we explore the inextricable link between business success and project management, I ask you: For each of the following formulas, can you tell if they are used by the Chief Financial Officer (CFO) or the Project Manager (PM)?
To determine the discounted value of future cash flows resulting from an investment project:
PV = FV × 1/(1r)^n
FV = Future Value
n = number of periods
To determine the % return on capital invested in a project:
ROI = Discounted Income from The Project/Cost of the Project
The answer? Both of these business and project formulas are used by and are extremely important to CFOs and PMs. The finance department is always thinking about the return on investment (ROI) and present value (PV). Do you know what other function has ROI and PV as a core toolset in their day-to-day work? Project managers! They are the ones who need to keep the project on track to achieve the ROI and PV the business leaders have targeted. A core tenet of good project management is benefits realization and tracking to business value.
The CFO always wants to track costs as part of ensuring work is progressing as planned. Project managers use tools to keep the costs of the project on track as the work is executed while always balancing schedule, resources, and budget
Studying for the PMP Exam?
To consistently track whether costs are in line with the original budget and make adjustments to the project if needed:
Estimate at Completion (EAC) = the estimated total cost of the project when complete, updated as the project progresses
Calculating risk is always top of mind for the CFO and the Project Manager. Expected Monetary Value is a calculation used in both the finance department and in project management to quantify risk based on the likelihood and size of the risk:
EMV = (Size of Risk 1 x Likelihood of Risk 1) + (Size of Risk 2 x Likelihood of Risk 2) + …
This formula is used to quantify the overall risk (either positive or negative) of a project or an investment in general.
It is impossible to de-couple project management from the broader business strategy and objectives. The same financial formulas and tools are used in project management and the rest of the business as they share the goal of realizing maximized business value for any work effort.
Upcoming PMP Certification Training – Live & Online Classes