Capital Project Financial Management - Seeking the "Universal Translator"

Have you ever had one of the following experiences?

• You ask for the financial status of a capital project and you get different answers from Finance and the Project Manager.
• A capital project that has been on track appears to suddenly look like it will be significantly over budget.
• Additional funds need to be appropriated for a project that was completed within budget overall, but the funding sources were out of balance.

If so, you are not alone. As an engineer by education and a finance person by experience, I suggest that one of the underlying causes is that your finance and capital project management folks are not speaking the same language. Kirkland's Finance Department and Capital Projects Division (in the Public Works Department) have historically had a very close relationship, but we continued to experience some of the issues highlighted above.

We convened a team of individuals from both functions to work on better ways to address these issues. One of the tools they developed was a project dashboard, a sample of which is available at the following link: CIP Project Budget Dashboard.

The dashboard marries financial and project management data to provide a snapshot of the project status on a page or two. One of the ground rules is that the budget and actual information has to tie to the data in the financial system. This may seem obvious, but when project managers were maintaining their own spreadsheets of project budgets, there were circumstances where the paperwork had not been initiated to make a known change "official" in the finance system.

Another key element of the dashboard is the recognition of the "color of money." Many complex public works projects are funded from a variety of sources and many of these sources are restricted in terms of what they can be used for. For example, the funding for a major road project may include grants, utility capital revenues, and general fund resources. Grants often have specific project elements they can be used to fund, as well as specific costs that are ineligible for payment using grant funds. It is imperative that these constraints are understood at the outset of the process to ensure that adequate non-grant funding is available for the ineligible expenses.

Similarly, projects may include investment in utility facilities, such as surface water components that are eligible for funding from surface water capital resources, but those funds cannot be used to pay for costs not related to those facilities. For example, if a project has actual surface water costs that are less than the amount budgeted to be funded from the utility, the excess funding cannot be used to offset cost over-runs in non-surface water elements. The dashboard tracks expenses related to specific revenue sources explicitly so that budget status can be characterized to recognize issues related to the "color of money."

The "estimate to complete" is a judgment call on the part of the project manager as to how much of the scope of work has been accomplished versus how much of the budget has been expended. This provides a potential early warning of pending issues that could arise as the project progresses. A detailed discussion of how to evaluate the estimate to complete is beyond the scope of this article, but there are many project management educational materials available to help with this process. One resource is the Project Management Institute's publication "A Guide to the Project Management Body of Knowledge" (also known as the "PMBOK Guide"), especially Chapter 7.

In addition to the dashboard, communication is a key success element in capital project management. To foster communication, a series of periodic review meetings was established between the CIP group and Finance staff to discuss project progress and provide status on topics relevant to both groups. A matrix summarizing project milestones that should be discussed is provided as Figure 1.

For major projects, a CIP Steering Committee was established consisting of senior management in the City Manager's Office, Public Works, and Finance Departments to receive monthly briefings on project status. The graphic in Figure 2 illustrates that relationship.

Finally, there is a framework to ensure that the City Council is briefed at key milestones, as shown in Figure 3. While these major process steps require Council authorization, for very large capital projects, status reports are provided to the City Council at some of the major milestones highlighted in Figure 1 to help ensure that there are no surprises.

This process many not be the perfect "universal translator" we are seeking (pardon the Star Trek reference), but it represents a big step in improving consistency and communications. While it takes a village to manage capital projects and a number of people have worked hard to refine Kirkland's process, I want to highlight the efforts of two individuals who have been critical to its success, Rod Steitzer PE, Capital Projects Supervisor in Public Works (rsteitzer@kirklandwa.gov), and Chris Lynch, Senior Accounting Associate in Finance (clynch@kirklandwa.gov). Please e-mail them if you are interested in more details.