Finance and Lifecycle Cost Management, Essay Example

Financial management is the balance of art and science to effectively and efficiently utilize money to meet the goals and objectives of the organization. The goals and objectives are aligned from the strategic vision of the senior leadership all the way through to the front line supervisors’ goals and objectives. This ensures that all of the effort and projects that are implemented during the lifecycle of the organization’s planning cycle are interrelated and corollary to one another. This helps eliminate the misappropriation of financial tools and assets.The art of financial management is mastering the perfect balance between financial tools, monetary assets, utilization balances between operating and capital expenditures and funding the right projects at the right time. This is complimented by the science and mathematical analysis of the current markets, money markets, debt and equity balances and ultimately the quantitative analysis fortifying key business decisions. Financial decisions on where capital is used and when it is allocated drives the projects which achieve the goals and objectives of the business.  In any project there are three constraints that are always interrelated. The three constraints are scope, schedule and cost.  The financial management decisions made are directly related to the operations of the business and the business’ ability to be successful. Throughout the financial management area of responsibility there are key functions that occur which encompass budget and forecast estimates, working capital management, raising capital through debt and equity options, outside investments into the organization, portfolio diversification and risk management. While the list is not all encompassing of the financial management role and responsibilities they do include key functional areas that facilitate financial success for the organization.

Project Lifecycle Management

A project is, by definition, a temporary endeavor to produce a unique deliverable at the conclusion of the endeavor. With any endeavor that will result in a specific deliverable there is a cost associated with the work and other resources that go into the delivery of that good or service. As the project progresses through the lifecycle the time draws closer to start assigning costs to the project. At this point, the project’s scope has been appropriately defined. With that being said the expectations are set with the stakeholders and a deliverable is expected at a certain time in the future.  Each iterative phase will require its own project lifecycle which includes separate cost management analysis and execution.  The next step in the project phase is to develop the costs associated with the project so that a forecasted budget can help determine the required resources for the project completion.  Throughout the project cost management will need to be taken into consideration.  During the current planning phase both cost estimating and cost budgeting activities will occur.  There are multiple tools and techniques for estimating the project costs.  The tools will be examined and applied as needed to result in the cost estimation for the project.  The processes for implementing an effective and accurate cost estimate will include estimating costs, determining budget and controlling the costs(Bloucher, Stout &Cokins , 2009).  All three areas are imperative to project execution and cost management.

In cost management, the first area is to estimate the costs of each individual activity of the project.  This allows for a more focus approach and enables a concentrated effort to produce accurate and reliable estimates.  While the goal is to fully understand the costs associated with a project it is important to note that these estimates are occurring during the early planning stage of the project and not actual costs.  There are multiple techniques to estimate costs for a project.  For example, there is analogous estimating, parametric modeling and bottom-up estimation(.  In analogous estimating, the estimate is derived from comparisons to other projects that are similar in nature to the project under current implementation.  In the case of the ERP implementation, the only other project close in nature are those of the competitors and information is scarce and has a high likelihood of unreliability.  This method would provide a generalized cost estimate but would not provide the level of detail that would instill confidence leadership would require for such a project.  The next method called parametric modeling could be used to determine the cost of the project.  This model used statistics and mathematical formulas to determine costs of the project.  This is normally done using regression analysis or other statistical model to extrapolate the costs.  The downside of this method is the estimates derived would only be as good as the assumptions and inputs made by the project team to determine the costs.  Since the team has not worked on a project like this in the past and do not have any data available for calculation this method does not necessarily fit the requirements to produce the most accurate estimate as possible with the given information.  The bottom-up estimation could potentially work as the method to estimate the costs of the project(Bloucher, Stout &Cokins , 2009).  This method involves breaking down the activities needed to complete the project and assign a cost to each activity.

Conclusion

With this information regarding cost, schedule and scope, the management team will be able to manage the risks associated with the project.  The tools including EVM and status updates will provide the data the project manager needs to make educated business decisions on how to manage the variances in cost and schedule.  The project manager will continuously work to monitor the actual costs throughout the life-cycle of the project and the tools chosen will help enable project management actions to ensure project success.

References

Bloucher, E., Stout, D., &Cokins , G. (2009). Cost management:a strategic emphasis. (5 ed.). McGraw-Hill.

Cooper, D. F., Grey, S., Raymond, G., & Walker, P. (2005). Project risk management guidelines, managing risk in large projects and complex procurements. John Wiley & Sons.

Emery, D. R., Finnerty, J. D., & Stowe, J. D. (2007). Corporate financial management. Pearson College Div.

Highsmith, J. A., & Highsmith, J. (2010). Agile project management, creating innovative products. Addison-Wesley Professional.

Magal, S. R., & Word, J. (2011). Integrated business processes with erp systems. RRD/Jefferson City: Wiley.

Monk, E., & Wagner, B. (2009). Concepts in enterprise resource planning. (3 ed.). Boston, MA: Course Technology Cengage Learning.

Prencipe, A., Davies, A., & Hobday, M. (2007). The business of systems integration. Oxford University Press, USA.

Project Management Institute, P. M. (2008). A guide to the project management body of knowledge. (4th ed.). Newtown Square: Project Management Inst.