Project managers monitor project expenditures to verify that they’re in accordance with the project plan and, if they’re not, to address any deviations. You may think that you can determine project funds used to date and funds remaining just by reading the balance in your project’s financial account (the project’s checkbook). However, spending project funds entails several steps before you actually pay for an item. After each step, you have a better sense of whether you’ll incur the expenditure and, if you do, its exact amount.
The process leading up to and including the disbursement of funds for goods and services includes the following steps:
You include a rough estimate of the item’s cost in your project’s budget.
You can develop this rough estimate by using your prior experience, by checking with others who have purchased similar items in the past, or by checking with your procurement department. Usually, you don’t check with specific vendors or supplies when developing this rough estimate.
You submit a written, approved request for the item to your procurement department.
This request specifies the rough estimate of the cost included in your project budget and any upper limit that the actual cost can’t exceed. The project manager or his designee approves it, and anyone else who controls the expenditure of project funds (such as the finance department) approves it.
Your procurement department selects a vendor and submits a purchase order.
The purchase order formally requests the vendor to furnish you the item and specifies the procurement department’s estimate of the price.
The vendor agrees to provide the item you requested.
The vendor provides you written confirmation that he will sell you the item, together with the item’s price (including applicable taxes and shipping and handling charges) and the projected delivery date.
You receive and accept the item but aren’t yet billed for it.
You receive the item and verify that it meets the agreed specifications. If you don’t accept the item after the vendor makes repeated attempts to fix any problems you have with it, your procurement department cancels the purchase order and you begin looking for a different vendor or a different item that will meet your needs.
You or your finance department receives a bill for the item.
This bill details the item’s final cost, together with associated discounts, taxes, and shipping and handling charges.
Your finance department disburses funds to pay for the item.
The bill for your item is paid with money from your project’s funds.
Depending on the size of your purchase and the size and formality of your organization, you may handle some of these stages informally for some purchases. As you proceed from the first step to the last, your estimate of the item’s price becomes more accurate, and the likelihood that you’ll actually make the purchase increases.
Responsible project monitoring requires that you have a clear idea of available project funds at each stage of the process. To do so, you typically want to monitor purchase requisitions, purchase orders, commitments (that is, purchase orders or contracts that you and the contractor or vendor agreed to), accounts payable, and expenditures.
