Project Management Accounting: Budgeting, Tracking, and Reporting Costs and Profitability

Chapter 3. Accounting, Finance, and Project Management

In Chapter 2, we defined the DuPont method for analyzing a company’s finances. In this chapter, we apply that method to the financials of a mythical company, although the figures are based on a real company. Our emphasis during this analysis is in identifying information that is important for project managers and team members to know.

Why is there a link among accounting, finance, and project management? The answer is not complex: If all members of a project team do not understand how they are carrying forward the company’s mission and strategy with the project that they are working on, and in particular each employee’s part in the project, then the project has a good chance of going awry. That understanding includes how the project contributes to the value of the company in a very concrete way and how each individual on the project is a part of the contribution.

As we pointed out in Chapter 1, the strategy of a company must be driven by financials; whatever the company’s mission is, without sound financials, the company cannot succeed. The DuPont financial analysis allows us to take a close look at a company’s finances and determine the current situation as well as study how things could be manipulated to improve the financial picture. The value drivers or levers that are represented by the different financial ratios give a company the ability to change its financial performance. The ability to identify the levers and how to ...