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Financial planning for project-based companies: how to enhance profitability and cash flow forecasting

Sep. 30 2020 by Marco Van der Kooij, Managing Director - ForSight Consulting

Performance Management Budgeting & Planning

Project-based companies in sectors such as professional services, engineering & construction and manufacturing can find it a challenge in their business plan to optimize profitability and cash flow forecasting. Often multiple (legacy) systems and spreadsheets are used to support the entire business from acquisition, quotation, planning (demand & supply of resources), realization (time, material & expenses), project management, invoicing with financial control, forecasting, after-sales support and maintenance. And to get an accurate consolidated view of all projects for a reliable and accurate forecast, including cash flow, is cumbersome. Missing out timely information about project progress, and related financials and risks has an impact on profitability, especially at a time of extreme uncertainty.

How can the office of finance help?

The office of finance can provide the required insights to improve project performance and forecasting. So think about:

  • Integrated cash flow planning, reporting and long-range forecasting, at a company and project level, from one set of data based on the financial and project-to-date calendar
  • Multi-currency analysis and associated risk (hedging, multi-scenario analysis, cash pooling)
  • Profitability and margin analysis, based on any input, through advanced cost allocation
  • Predictive analytics for scenario planning: inclusion of external variables that can affect project performance, such as government policy on workforce restrictions, limitations on material shipping and similar
  • Run driver-based scenarios with what-if analysis to optimize capacity and workforce planning, including associated revenue and costs

A holistic view of financial planning for projects

Of course, running and managing projects can both be a challenge and a routine depending on the type of project and business. However, when external market circumstances are changing and uncertain, financial planning and control at an aggregated company-wide level is necessary for timely steering. Collecting more detailed financial and operational data from projects provides more reliable and actionable information for data-driven decision making. Next to earned value analysis, percentage of completion for revenue and cost recognition, the aggregated commitments, project-to-date performance and estimated project results are important to steer the company as a whole, including a frequent cash flow forecast with the impact on financing current and new projects.

Ask yourself the right questions to evaluate where improvement is needed

How can you improve the profitability of the company and/or margins of projects? What granularity of data is required for this to gain more insight? What bottlenecks and shortcomings do you experience with your current budgeting, planning & reporting system? What is the impact of these bottlenecks and shortcomings? If you were an external consultant to your own company, what would you like to change?

The answers to these questions and many more will tell you how agile you are in providing actionable forward-looking information. The size, complexity and distributed nature of data needed for increasingly closer to real-time and optimized decision making, is needed now more than ever, meaning that rigid processes, architectures and tools are breaking down.

Uncertainty will continue in the coming years, as we migrate to a new era. Adaptability, agility and creativity are the most important characteristics for project-based companies to survive. This needs to be fed fast by reliable, accurate and actionable information with context through a modern cloud-based planning, reporting and analysis system. Now it is time to act and replace your legacy system.

If you want to learn more about the benefits that Keepmoat Homes is gaining with CCH Tagetik Budgeting & Planning solutions watch the video here!

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