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

Chapter 6. Project Revenue and Cash Flows

Chapter 5 discussed calculating an enterprise-wide hurdle rate, weighted average cost of capital (WACC). This chapter looks at the investing and financing decisions on a company’s individual projects. We provide insight on the role of the financial manager and introduce how to calculate a company’s statement of cash flows. The statement of cash flows analysis will act as a segue into calculating free cash flows of a proposed project. Then we focus on different methodologies for calculating a project’s viability.

Role of the Financial Manager

It is a common misconception that accountants are financial managers. The fundamental difference between accounting and finance is that accounting is the recording or categorizing of financial transactions for the purpose of constructing and interpreting financial statements. The purpose of finance is to develop benchmarks as a guide to managers. Titles like controller, treasurer, and chief financial officer often are used interchangeably, as are accountant and financial manager. The exact assignment of duties and responsibilities is determined by a company’s individual uniqueness.

In order to avoid confusion, the project manager should consult the company’s organization chart. It is important to note that people with impeccable accounting skills, such as certified public accountants (CPAs), do not necessarily have financial management knowledge or skills. A CPA’s training is vastly different from that ...