The Project Balance Sheet

We now consider the insights about the business learned from the accounting balance sheet that will provide a quantitative framework for the project manager. First we direct our attention to the three elements that are necessary to form a balance sheet. To charter the project, business sponsors assign resources and state the required project returns needed for the business. Project returns are both functional and financial. Any one of the business value models we have discussed could be used to form the sponsor's view of the project. Sponsor-invested resources correspond roughly to the capital or equity investments on the accountant's balance sheet. As many companies are measured by the returns earned on the capital employed, so it is with projects. We will discuss in subsequent chapters that a project metric in wide use is the concept of economic value add (EVA). In effect, EVA demands positive returns on capital employed.

Second, the project manager is entrusted with resources owned by the business to carry out the project. These resources correspond roughly to the company-owned assets of the accountant's balance sheet. Like company managers who are often measured on their ability to create a return on the assets entrusted to them, so it is with project managers. Project managers are always judged on their ability to employ successfully the sponsor's resources to achieve the project objectives.

Third, there is the gap between the investment made available and the resources required. On the accountant's balance sheet, this gap between investment and resources is filled with loans from outsiders: suppliers and creditors. On the project balance sheet, the gap is filled with risk! Risk is taken, or assumed, to fill the gap between expectations and capabilities, between sponsor investment and project estimates of resources. Figure 1-7 illustrates the tool we have been discussing.

Software Project Example

The Business

The Project

Resources

J25CK 1D FTPs Building A

Expected vafue: $275K t£ FTEs Building A

Resources

Scope

Deliver operational funrtionatity to meet operational efficiency and customer satisfaction

Deliver operational lu nationality to meet operational efficiency and customer satisfaction

Scope

Business case

R0&1£% IRR = 15% Operallonal 1 April

Pilot 1 April Opefational 1 May

Schedule

KPIa

Cus-tgmer satisfaction Operational efficiency

Cost: $25K 2 FTE$ 1 monlh

Risk

The project manager must manage the fisk values to balance resource-scOpe-scheduh estimates with expectations. Figure 1-7: The Project Balance Sheet.

We now have the elements for the "project equation," a direct analog to the accounting equation: "Value delivered from resources invested = project capability and capacity plus risks taken."[15]

For project managers, their mission is now defined: "The project manager's mission is to manage project capability and capacity to deliver expected value, taking measured risks to do so." M61 [17]

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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