Project management and Balance sheet

Project management and Balance sheet

Joachim von Schantz
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In the realm of project management, choosing the right methodology is akin to selecting the right tool for the job. Whether you're overseeing a single project or managing an entire portfolio, understanding when to embrace Agile, when to rely on Waterfall, and how to optimize your Project Portfolio Management (PPM) strategy is the key to success.

If you find yourself in an environment where people frequently change their minds, it can indeed be a significant challenge, especially when working with Agile methodologies that rely on stable requirements. However, Agile is designed to handle change gracefully. Here are some specific strategies to cope with this situation, remember that, in Agile, flexibility and adaptability are strengths. While frequent changes can be challenging, they also offer the opportunity to deliver the most valuable solutions. By applying these strategies and fostering a culture of open communication and shared understanding, you can navigate the challenges of an ever-changing landscape with confidence and success.

Certainly, adapting to frequent changes in a Waterfall environment can be demanding, as this methodology is traditionally more structured and sequential. Nevertheless, there are strategies you can employ to manage changing requirements within a Waterfall framework. Remember that while Waterfall is known for its structured approach, it is not inherently resistant to change. It's essential to adapt your processes to accommodate evolving requirements and manage changes effectively, all while maintaining the core principles of the Waterfall methodology, such as comprehensive planning and a structured approach. With these strategies, you can navigate changing requirements successfully within a Waterfall framework.

Agile: The Power of Adaptability

Agile methodology is a revolution in project management. It offers flexibility, adaptability, and customer-centricity. Agile divides projects into small, manageable sprints or iterations, allowing for continuous feedback and adjustments. This makes it ideal for ventures where requirements are likely to evolve over time.

Key benefits of Agile: 

  • Iterative Development: Agile divides the project into manageable parts, enabling frequent reassessment and adaptation.
  • Customer Collaboration: Agile promotes close collaboration with customers or end-users, facilitating rapid feedback.
  • Adaptability: Agile accommodates changes in requirements, even late in the development process.
  • Cross-functional Teams: Teams are diverse, with expertise spanning various aspects of the project.

Waterfall: The Pinnacle of Structure

In contrast, Waterfall methodology is a structured, sequential approach. It follows a linear path through distinct phases, from requirements gathering to deployment. Waterfall is ideal for projects where the scope is well-defined, and changes are either costly or not permissible.

Key features of waterfall: 

  • Sequential Progression: Waterfall adheres to a rigid, linear path, with each phase building upon the previous one.
  • Detailed Planning: Extensive documentation and planning occur upfront, setting clear project requirements.
  • Minimal Customer Involvement: Customer participation is usually limited to the project's beginning and end.
  • Risk Aversion: Changes in requirements after the project starts are discouraged to maintain stability.

Choosing the Right Methodology

The choice between Agile and Waterfall is determined by the nature of the project. Agile excels in ventures where change and adaptability are paramount, while Waterfall is suited for projects with well-defined requirements and a low tolerance for change. However, some organizations have found success in adopting hybrid approaches that combine elements of both methodologies to strike the right balance.

Project Portfolio Management (PPM): Beyond the Individual Project

Project Portfolio Management (PPM) is the orchestration of multiple projects to align with strategic objectives. Agile and Waterfall can play vital roles within PPM, depending on the nature of the portfolio. Agile can offer adaptability and quick decision-making for dynamic portfolios, while Waterfall can bring stability and predictability to more structured collections of projects.

Optimizing PPM: The Right Tool for the Right Project

In the ever-evolving landscape of project management, the right methodology is the linchpin to success. Whether your project is a single venture or part of a more extensive portfolio, matching the methodology to your project's unique needs is essential. It is the key to achieving efficiency, managing risks, and ensuring that your projects align with your organization's broader goals.

So, the next time you embark on a project, consider the Agile and Waterfall methodologies, and keep PPM in your toolkit. Adapt, plan, execute, and align strategically to master the art of project management.

Project Costs

Project costs are typically not recorded on a company's balance sheet in the same way that assets, liabilities, and equity are. Instead, project costs are typically expensed as incurred. However, there are a few key considerations regarding project costs and their impact on financial statements:

Expense Recognition: Costs related to a project, such as labor, materials, and overhead, are generally recognized as expenses on the income statement as they are incurred. This practice is in line with the matching principle in accounting, which aims to match expenses with the revenues they help generate.

Capitalization of Certain Costs: In some cases, specific project costs may be capitalized and recorded as assets on the balance sheet. This typically occurs when these costs meet certain criteria, such as being directly attributable to an asset that will provide future economic benefits. For example, costs incurred to develop a new software product or construct a building may be capitalized and amortized over their useful life.

Project-in-Progress: Instead of directly recording project costs on the balance sheet, some companies may maintain a "work in progress" or "project-in-progress" account on the balance sheet however this is not possible for costs that will be recognized as cost on the income statement. This account represents the accumulated suitable costs related to ongoing projects that will at a later stage be capitalized on the balance sheet. Once the project is completed and its costs can be allocated to specific assets, they are then capitalized and recognized on the balance sheet.

Activation of internal labor costs are an interesting topic in especially in the Agile project world which I will take a swing at in my other blog post.

Disclosure: In the footnotes to the financial statements, companies may provide information about the nature and scale of significant projects, including their expected impact on future expenses and any capitalized costs.

In summary, while project costs are typically recognized as expenses on the income statement, certain costs may be capitalized and recorded on the balance sheet when they meet specific criteria. It's essential to adhere to generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS), as applicable, to ensure accurate and compliant financial reporting. If you are considering capitalizing project costs, it's advisable to consult with a professional accountant or financial expert to ensure proper accounting treatment.