Mastering Budgets in Project-Based Organizations: Key Decisions That Define Your Financial Path
By: Rich Uphus | November 21, 2023
ARTICLE – In the modern economy, where many companies and industries function on a project-to-project basis—whether in the intricate world of software development or the steel-and-concrete landscape of construction—financial diligence becomes the bedrock of success. One of the paramount concerns here is how an organization manages its spend. Straying off track can be financially disastrous, while a well-orchestrated budget can guide a project to prosperity.
Each project presents a unique mosaic of requirements. Consequently, every penny allocated in the budget is a decision that will echo throughout the life of that project. Overspending might lead to borrowing or even project discontinuation while underspending might hint at missed opportunities or inferior quality. According to a 2021 study by the Project Management Institute, poor budget management was a primary cause of project failure in 37% of cases.
Enterprises are increasingly seeking technological aids for budget management. The dream? A solution that allows predefined budgets and tracks real-time expenses against these benchmarks.
Here are the three pivotal decisions that shape how a project-based organization approaches its spend:
Key Decision Point #1
Segmentation: Classifying Your Transactions
Before jumping into the world of Enterprise Resource Planning (ERP), the act of defining GL dimensions (or, as NetSuite labels it, “segments”) is a must. These segments can range from the natural GL account, subsidiary, and department to specific projects, locations, or lines of business (LOB).
A seasoned financial analyst at Global Tech Innovators, John McKenna, explains, “Segmentation is like labeling every drawer in a massive filing cabinet. It ensures that every transaction finds its right place, simplifying tracking and analysis.”
Key Decision Point #2
Budget Configuration: Tailoring to Project Needs
Post-segmentation, the intricate details of budget configuration step into the spotlight:
- Transaction Types: It’s essential to determine which transactions necessitate budget scrutiny, which typically includes purchase orders, vendor bills, and expense reports, among others.
- With varying control modes, such as “Control” (which outright rejects any budget-violating transactions) or “Warning” (which alerts the user about the discrepancy), organizations can strike the right balance between stringent regulation and flexibility.
- Exceptions, Tolerance, and Overrides: These features offer layers of customization. For instance, tolerance settings can permit expenses that marginally exceed the budget. Meanwhile, project managers can approve or reject certain transactions via the NetSuite workflow.
Continuous adjustment is another critical facet. As the market shifts and challenges arise, budgets must remain malleable. Oracle’s Planning and Budgeting Cloud Service (PBCS) provides a platform for these crucial tweaks.
Key Decision Point #3
Transaction Control: Governance in Spending
In a landscape where every transaction counts, governance becomes paramount. Transaction control ensures that each financial action aligns with the allocated budget, scrutinizing everything from purchase requisitions to vendor bill validations.
- An automated system should be able to block users from going over budget or at least support additional project manager based approvals.
Drawing the line between operational expenses (OpEx) and capital expenses (CapEx) is also vital. While the former might receive warnings for discrepancies, the latter demands rigorous adherence, flagging deviations.
Making Spend Management Intuitive with PyanGo
Modern problems demand modern solutions. PyanGo’s Budgetary Control for NetSuite integrates seamlessly with NetSuite, equipping project-centric organizations with the necessary tools to oversee the purchasing cycle. Offering transparency far surpassing traditional spreadsheet methods, PyanGo ensures that organizations remain financially sound and on track.
Going forward, spend management’s intricacies might be many. Still, with the right approach, guided by informed decisions, project-based organizations can confidently tread the path of fiscal responsibility.
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