Put simply, a project financial report is a document that sets out the overall performance of a project, its time frame, and its budget. Many companies and businesses use these to keep track of the profitability and expense of various endeavors, and they’re also useful to governments and other organizations. The specifics of what’s involved will usually fluctuate somewhat depending on the nature of the project at issue, but in most cases the core elements of all reports are about the same: all set out the basic revenue and expenses, for instance, as well as defining allocation methods; most of the time they also identify the overarching project goals and expectations moving forward. Reports are often required by external parties who have a financial interest in the projects being described, and in many cases the success and continued funding of the undertakings depends on whether or not investors are pleased with the numbers and statistics conveyed. Sometimes reports are included with a corporation’s larger annual report, which is normally provided to shareholders, but it can also usually be requested and published independently. The timing is usually dependent on when the project is finished or, alternatively, when major investors want a progress report.
Understanding Financial Statements and Reports Generally
Financial statements are critical to all business endeavors, whether large or small and whether for profit or not. There are many different types, largely to align with many different goals. A profit and loss statement, also known as an income and spending or earnings and expenses report, is one example; another is a balance sheet or an account balance report. A cash flow report is less common in smaller entities and seldom created by individuals.
In most cases, the thing that makes a specifically project financial report unique is its scope. All three basic types of financial statements can be used either broadly or specifically, and all can be included in a project report if used to detail the prospects or performance of a specific, isolated project.
Specifics of What Project Reports Must Detail
A typical project financial report usually includes a written narrative to inform the reader of the project goals and progress. This part of the report will also discuss project overruns and problems affecting financial performance. Reporting about how much money was gained or lost during a particular time period, how that gain or loss appeared in the various accounts, and how much money came from revenue-generating activities, investment activities, and loans is also normally included. Much of this varies depending on the project itself, with longer and more complex endeavors requiring more. The core elements included are usually pretty consistent, though.
Revenues and Expenses
It’s usually necessary to allocate revenues and expenses very precisely in project accounting. The revenue must be directly associated with the project, for instance. In most cases the expenses will be categorized in two broad groups: direct and indirect expenses.
Direct expenses are incurred exclusively due to project activities, such as labor and project supplies. Indirect expenses are shared with other projects or activities. These include management above the project management and several support functions, such as quality control or marketing.
Allocating indirect costs is often a bit more complicated. While there are standards for allocation developed by accounting professionals, these may be open to debate. An example of such a cost debate is the correct way to allocate a non-project support department manager’s time with several technical people assigned to various project managers for quality control. If the quality control manager does not actually need to review the work performed by his employee, whether he should still allocate some of his time to managing the employee due to the indirect costs of providing office space, hiring, training, and other management costs associated with making the technical employee available to the project is somewhat controversial — some reports include this while others do not.
Defining the Larger Scope
Another concern in reviewing a project financial report is the definition of the scope of the project. Projects often get expanded or rescheduled, or experience a change in funding levels. The statement of work that describes the work to be performed, the schedule, and the cost need to be revised in a timely manner. This expanded work activity should be clearly stated in the written portion of the project financial report so that the effectiveness and success of the project can be clearly determined.
