Financial modelling is used for planning the long-term goals of a business based on different scenarios that may arise.
By definition, a financial model is a three to five-year financial analysis attached to a business plan. But, it’s actually more extensive than that. It analyses financial statements—income and expenses—that can be used to calculate the potential impact of a future decision or situation.
Project managers build, review, and analyse project financial modelling at all levels. They use it to communicate with several individuals involved, including early-stage investors and stockholders, and make sure that the direction the project is taking is aligned with the financial model.
In this article, we’ll discuss further how finance models help project managers.
How Skills in Financial Modelling Help Project Managers
Why should a project manager refer to a project finance model? This data serves the different needs of an organisation, but it can help:
- Manage cash flows
- Identify risks
- Analyse strategies; and
- Discover opportunities
The focus of a project manager is to deliver each project on time and on budget. But, in today’s competitive environment, the scope of their responsibility is becoming broader—they also have to be more financially savvy. This means that they also have to contribute to both stockholder value and the long-term success of the business by understanding its cash flow and how each project fits into it.
Whether you work in the IT, healthcare, manufacturing, construction, or e-commerce industry as a project manager—you can benefit from having knowledge in financial modelling.
- It helps you better handle business projects
Project managers have diverse roles which involve leading different teams, communicating with clients, balancing budgets, and meeting deadlines. These types of skills are further developed when you are trained in financial modelling. A financial model serves as a decision-making tool that lets you estimate the costs and potential profits of a proposed project.
- It allows you to remain competitive
With an understanding of the business and its financial capabilities, you can take initiatives to remain market competitive. You can help develop a product or service that will eventually generate more cash. This can ultimately deliver value and benefits to the organisation, including its stockholders, clients, and employees.
- It helps you reduce capital costs
A good financial model allows you to monitor the rate of return for a project and identify the factors that influence that figure. By analysing a financial model, you can focus on the cash flow and increasing its rate, to help lower the expenses in the long run.
- It lets you answer questions like “what do I do now? “
Financial models are used to estimate the value of a business, plan and test various scenarios, calculate the costs of a project, determine budgets, and allocate resources. It basically provides answers to things, even those that may take months or years to take place. Having experience in financial modelling is good because it allows you to help businesses understand what to expect when they make certain decisions.
- It can drive your career growth
Getting trained in financial modelling is a great way to develop your skills. But, even better, it can also help you seek better career opportunities with a higher salary where you help businesses simplify their goals by making relevant, purposeful, and informed decisions.
As the business grows, the job of a project manager expands to include new territories. Knowledge in financial modelling plays a key role in analysing costs, calculating potential returns, and projecting growth—and as a project manager, this is where you should be dedicating your time and effort.
What are your thoughts about the benefits that financial modelling can offer to project managers? Let us know by leaving a comment.