BGGE 2044 PROJECT MANAGEMENT

AND FINANCE

Chapter 1
An Introduction and Overview of Finance in
Project Management

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Course Learning Outcomes
Upon completion of the course, students should be able to:
  
 Describe the processes of project management within the

body of knowledge of project management. (C3)

 Apply appropriate tools and techniques in project

management processes. (C3)

 Apply financial concepts, tools and techniques for project

financial and capital budgeting analysis. (C3)

 Produce a project proposal / project plan for engineering

projects. (C5)

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 CO4
CO3
CO2
CO1
Course
Learning
Outcomes

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Knowledge

2
Problem Analysis

3
Design/Development of Solutions

4
Investigation

5
Modern Tool Usage

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Engineer and Society

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8 Environment and Sustainability

Ethics
Programme Outcomes

Communications

Individual and Team Work

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Mapping of CO to PO and PEO

Lifelong Learning
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Project Management and Finance

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Assessment
 Coursework (50%)
 Assignment 1 ( Project Management ∼25%)
 Assignment 2 ( Finance ∼25%)
 Assignment 3: Developing a Project Plan/
Project Proposal ∼50%

 Written E-assessment (50%)

 3 hours for 5 questions

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Course Contents –
Finance for Project Management

Chapter 1:
An Overview of Finance in Project Management
 An overview of finance and financial

management
 Finance for Project Management
 Functions of financial management
 Sources of finance
 Types of finance
 Project cost management

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Course Contents –
Finance for Project Management
Chapter 2:
Finance/Cost Terminology and Concept for Project Analysis
 Time value of money
 Present / Future / Compound worth of a single value
 Present / Future / Compound worth of an annuity value
 Interest rate/ cost of capital / rate of return / effects of

taxes
 Cost concepts, cost classification and cost behavior
 Depreciation concepts and techniques

Chapter 3:
Project budgeting and project cash flows
 Engineering Economics, Project Budgeting and
 Project Cash Flows

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Course Contents –
Finance for Project Management

Chapter 4: Financial Analysis Techniques for projects

Decision Analysis Techniques

Capital Budgeting Techniques

◦ Non-discounted methods
◦ Discounted methods

Break Even Analysis Techniques

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 Chapter 1

Introduction of Finance in Project

Management

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Chapter 1:
Introduction of Finance in Project Management

 An overview of finance and financial

management
 Functions of financial management
 Project cost management
 Sources of finance
 Types of finance

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An Overview of Finance and Finance Management

 Financing is the act of bringing money into an

organization.

 Financial Management is a process that brings together

planning, budgeting, accounting, financial reporting,
internal control and auditing for the financial activities
◦ such as procurement, disbursement, utilization of funds and the physical
performance of the project in a consistent and responsible manner.

 An effective Financial Management is an ongoing process

that features a cycle of good management habits.

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Finance for Project Management

 Project finance encompasses a wide range of activities and

disciplines involve in the management of money and other valuable
assets

 Projects develop assets that produce a return to the company and

its shareholders. They are essential to the cash cycle of the firm.

 Financing the project is an important action that the sponsor

(person or group that provides the financial resources - in cash or
in kind - for the project) has, after having championed the
development of the project charter.

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Finance for Project Management
 With good project management tools and techniques but without
correctly study the cost of the project, it’s impossible to
know the exact amount of money that project needs and the cost
baseline that influences the finance needs of the project.

 So like the concept of Project Management, finance knowledge is an

important component of project management.

 It is a strategic competency for organizations and can make the

difference between a successful project and audit reports.

 The Project Management Institute’s (PMI) develops “ A Guide to the

Project Management Body of Knowledge (PMBOK® Guide)” -
◦ framework that collects the entire processes, best practices,
terminologies, and guidelines that are globally accepted as
standards within the project management industry.

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Why Finance Matters for Project Managers?
 Traditionally, the project manager’s focus was to bring a
project in on time and on budget.
 In today’s changing environment, the project, not only

must projects be on time and on budget, but also need

to contribute to both shareholder value and the long-
term financial success of the business.
 It requires project managers to better understand the

company’s cash cycle and how each project fits into it.
 As a whole, project managers plan and manage a wide

variety of projects, overseeing projects and monitoring

plans to ensure deadlines are me, ensuring projects
stay within budget and work is up to standard.
 Aim is to manage project resources properly and

achieve project’s objectives.

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Functions of Financial Management
Financial management is essential for:
 capital expenditures – budgets to invest

(purchase) in assets that have a useful life to

create income.

 operating cash – money enough on hand to pay

for rent, utilities, telephone, insurance, payroll
and supplies. It is necessary to look ahead and
see when the accounts receivable are due and
compare them. If fail to manage cash flow
effectively, the company may not be able to pay
expenses and keep the company operating.

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Functions of Financial Management
 lower expenses - to keep costs as low as
possible. If costs are not monitored and
managed, the company will always have to
increase sales dramatically to pay rising
expenses.
 tax planning - ensure that cash on hand to pay

estimated tax and also timing of purchases of

major assets to get the maximum benefit.
Failure to plan for taxes and maximize
deductions can cause the company to spend
more than it has to on taxes

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 All businesses require an adequate finance
and money for:
 investment in fixed asset such as land,

building, machinery etc.

 operation, money is for working capital,

such as purchase of raw material,

payment of wages, utility bills etc.
 also extra capital to cover temporary cash

flow crisis, or purchase new improved

machinery or simply to expand the
business.
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Sources of Finance
Two major sources of finance which are:

 Owners Fund (owners capital) - funds contributed by the

owners of business as well as profits reinvested in
business through :-
 Issue of equity shares

 Ploughed back profits

 Borrow Fund (borrow capital) - raised by loans or credit

through :-
 Debentures

 Bank Loans

 Loans from specialized financial institutions

 Other long term financial institutions

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Type of Finance
On basis of time duration, they are usually classified under three
types which are: -

 Short Term Finance (working capital): money raises for business

needed for a period of less than one year.
 It is generally use for day to day expenses of business e.g.

payment of utility bills, wages to the workers, unforeseen

expenses, seasonal upswings in business, increasing inventories
raw material, work in progress and finished goods etc.
 The various sources of short term finance are:

 Trade creditor open book account

 Advance from customers
 Instalment credit
 Bank Overdraft
 Cash credit etc

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Type of Finance
 Middle term Finance - required for investment in
business for a period which normally ranges from one
to five years.
 Generally use for the repair and modernization of
machinery, renovation of the building, adopt of new
methods of production, carrying advertisement
campaign on large scale in newspapers, television etc.
 The various sources of medium term finance are as
under:-
 commercial banks

 debentures

 loans from Specialized Credit Institutions

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Type of Finance
 Long Term Finance/Long Term Capital/Fixed Capital –
funds which are required for investment in business for a
period exceeding five years.
 Also named as long term capital or fixed capital.
 Mostly required for the purchased of fixed assets, such as

land, building, machinery etc. modernization and

expansion of business.
 The various sources of long term finance are as under:-

 Equity shares
 Issue of right shares
 Debentures
 Loans from industrial and financial institutions
 Leasing
 Ploughing back of profits

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Project Cost Management
 It is one of the 10 areas of knowledge in the
project management framework.
 Processes in estimating, budgeting, and

controlling costs so that project can be

completed within the approved budget.
◦ Estimate Costs is to develop an approximation of the
monetary resources needed to complete project
activities, and
◦ Determine Budget is aggregating the estimated costs
of individual activities or work packages to establish
an approved cost baseline.
◦ Control Costs is monitoring the status of the project.

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END
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