Project Management Accounting: Budgeting, Tracking, and Reporting Costs and Profitability

Chapter 2. Finance, Strategy, and Strategic Project Management

In Chapter 1 we introduced the idea of how strategy, finance, and project management were interrelated and mapped out how the various phases of project management could be informed by financial analysis. In this chapter we set a foundation of knowledge about how the finances of a business function by introducing the concepts and practice of financial analysis and the tools used to carry them out. We use the financial statements of two companies to illustrate. In Chapter 3 we perform a detailed analysis of a third company, in the context of how to relate that information to project management.

In order to evaluate two or more project alternatives, it is important to know which alternative is a better fit from a strategic and financial perspective. Understanding both of these perspectives depends on how the finances of a company are performing and whether the finances are in good condition. Using different analysis tools, we can become familiar with how well a company is operating.

This chapter emphasizes financial ratio analysis. Don’t be worried about the mathematics of financial analysis. The only math you need to know is basic addition, subtraction, multiplication, and division. It is important, however, to learn about certain financial concepts and tools, such as a company balance sheet, income and expense statement, and a financial analysis method called the DuPont method.

Dupont Method

Let’s begin by focusing on the ...