Finance in Project Management – How to Optimize Financial Control and Planning of a Large Project?

An overview with Steven Lauck

Welcome to another edition of the PPM Hub interview series, where we bring you insights from industry experts. Today, we have the privilege of speaking with Steve Lauck, a seasoned project management professional with expertise in corporate business and capital project management, with over 30 years of professional experience.

Managing the financial aspects of a project, especially on a large scale, is often the defining factor between success and failure. In this conversation, we’ll dive into the critical aspects of finance in project management. Steve will share valuable insights, proven strategies, and real-world examples to help us understand the main points of financial control and planning in large projects.

What are the most common financial challenges faced during the planning and execution of large-scale projects?

Steven Lauck

When managing large-scale projects, financial challenges are almost inevitable, but being aware of them can help you stay ahead of potential issues. In my experience the top 5 financial hurdles many project managers face during planning and execution are Budget Overruns, Inaccurate Cost Estimations, Cash Flow Management, Change Orders and Scope Creep, and Economic & Market Changes.

How do you recommend aligning project budgets with organizational financial goals while maintaining flexibility for unforeseen changes?

Steven Lauck

When you’re managing a large-scale project, aligning the budget with your organization’s financial goals is crucial. To get started, it’s important to have a clear understanding of your organization’s broader financial objectives. These could range from increasing profitability to ensuring long-term sustainability or even expanding market share. Once you have a solid grasp of these goals, you’ll be in a better position to make sure the project budget doesn’t only stay within limits but also serves those larger objectives. It’s all about making sure your project is contributing to the bigger picture and isn’t a financial strain.

Having a detailed project scope with clear milestones will help you break down the overall costs and avoid surprises later on. However, large-scale projects are often unpredictable, so you must build in some flexibility. You should include a contingency reserve—often around 5-15% of the total budget—to cover any unexpected costs that come up along the way. This flexibility allows you to handle unforeseen challenges without completely disrupting the project or straying from the organization’s financial objectives.

Even with a contingency in place, it’s important to track the project budget regularly. Keep an eye on how the project is progressing financially—whether you’re sticking to the plan or if costs are creeping up. By regularly monitoring the budget, you can make adjustments as needed before things get out of hand and helps you maintain control over the budget while still adapting to any changes that arise. Key here is to make sure you have a strong change management process in place.

Lastly, flexibility doesn’t mean being able to adjust costs; to me it means adjusting your approach when new information comes in. As the project unfolds, regularly reassess how it’s performing against both the financial goals of the project and those of the organization. After the project is completed, take the time to reflect on the financial outcomes. This will help you better understand how well the budget aligned with the larger goals and prepare you for more successful budgeting in future projects. By balancing control with flexibility and maintaining constant communication with your finance team, you’ll be in a strong position to manage your project budget effectively and keep it aligned with your organization’s financial strategy.

What tools or methodologies do you consider essential for effective financial control in large projects?

Steven Lauck

While I am impressed with the tools available now, I am really old school. Yes, I enter information but tools don’t make projects successful. They assist in tracking, showing trends, historical data review, but I still use the PMBoK processes for tracking budgets and schedules. It’s up to the project manager to understand what is being reported or shown by the tool. “Why” is my go-to question. Why is this happening? Why did that happen? At times I feel like an accountant, pouring over numbers, forecasting trends, verifying expenses, and making decisions for a week ahead or a month ahead based on the project schedule.

Can you share an example of a large project where financial planning played a critical role in its success? What were the key takeaways?

Steven Lauck

With every project, financial planning plays a critical role. You have a set amount of money to deliver the project. My first project was a great learning experience. The project owner had held 10% of the project budget, I later learned, for their special projects but the approved project budget was the full amount (including the 10%). Second, I established a review of all purchase orders as budget was spent. A particularly large purchase order came through that did not match the project plan. Investigating, I found out a VP in the organization was spending budget without going through the process. During project close-out, the project owner asked a senior project manager to review the project to find what I had done wrong. The senior project manager replied, after a review, he would not have done anything differently; project plan was followed, the original budget had been met, the schedule was met, and the project exceeded the base KPIs.

My main takeaways were two – first, ensure that everyone is truthful and upfront. Second, guard your budget like it was your own money. This project also started ensuring that every project plan I write has a robust change management process and everyone knows about it.

How can project managers ensure accurate cost estimation and prevent budget overruns?

Steven Lauck

I like to sit down with the estimator and have them walk me through their estimate. This helps me understand how they developed the estimate and ask questions about their assumptions. I like estimates that have a list of the assumptions the estimator used. If any of the information is from historical data, I want to understand how that applies to the current project.

Second, depending on the dollar value of the project, one does not go wrong with having a contingency amount. Even the most accurate estimation cannot include any changes due to price increases, delays, future availability of goods, etc. As I mentioned earlier, 5% to 15% is usually a pretty good range.

What role do stakeholders play in financial decision-making for large projects, and how can project managers balance their expectations with financial constraints?

Steven Lauck

Stakeholder input during the estimating process is greatly appreciated. My experience is that once the budget is set, stakeholders generally are quiet. Unless of course, change requests start being generated. Then I want to review the change request with the stakeholders most effected by the change.

What advice would you give to project managers just starting to handle large project budgets?

Steven Lauck

First, don’t be intimidated by the dollar amount. It is just a project and should be handled like any other project. Yes, there is more to watch but it is numbers on a page. You can do this! Some readers might not like my statements but starting a project feeling overwhelmed or in awe of a dollar amount may bring forth bias’s you have and impact your ability to deliver.

Second, find a mentor. Someone who has been there before and has been successful at delivering high dollar projects. When I was learning I had a mentor in the organization and I had a mentor outside the organization in a similar capacity. My mentor inside help me with working in the organization (sort of “this is how we do things here”). My mentor outside the organization helped me with traditional project management processes alignment (sort of a how not to fall into bad habits). Not that organizations have bad PM habits but some I have worked with did cut corners and not apply good PM processes.

Learn about the estimating process, accounting process, and the procurement process in your organization. When I work with organizations, I find time to talk to the manager of these departments and ask about processes, procedures, and any documents or tools they use. I don’t want to be an expert; I just want to know how things flow in their department with regard to projects.

I find it very helpful to have a member of procurement be assigned to my team and will invite members of other departments to team meetings as necessary.

Third, I am a ‘what is the worst that can happen’ kind of person and I bring that to my financial planning and schedule planning. This is how I develop the assumptions for a project. Every stakeholder I meet with I always ask, “Based on your experience, what is the worst that can happen?”

Looking ahead, what new skills or knowledge areas do you think project managers will need to effectively manage finances in large-scale projects?

Steven Lauck

I think for new skills and knowledge are concerned focusing in global affairs. Understanding inflation, tariffs, exchange rates, shortages, all the things that do trickle down to effect projects. My writing partner, Jon M. Quigley, likes illustrating situations with memes. One that comes to mind here is one that shows a person saying, “The parts are on the way” in the top panel. In the bottom panel, a container ship is on fire. While this is an extreme, for me it generates a question: Did procurement discuss insurances with the supplier? What is the project’s protection? How does the project recover financially and timewise?

Steven Lauck, seasoned contract project management consultant and technical writer
Is a seasoned contract project management consultant and technical writer, with over thirty years of expertise in corporate business and capital project management. His extensive experience includes conceptualizing and designing complex machinery and overseeing multifaceted construction projects across various industries, consistently delivering successful outcomes. Steven’s dedication to excellence is evident in his contributions as an educator, having developed and taught CAPM and PMP training modules for PMI chapters, provided comprehensive organizational project management training, and mentored numerous project managers and entrepreneurs. Driven by a passion for successful project delivery, Steven is committed to aligning business projects with strategic visions, believing that while successful projects drive growth, failed projects can waste resources and negatively impact the bottom line.