THE ENVIRONMENT OF PROJECT BASED INFORMATION SYSTEMS

Get Complete Project Material File(s) Now! »

CHAPTER 3: PROJECT BASED FINANCIAL MANAGEMENT: THEORY AND PRACTICE

Introduction

The previous Chapter provided a discussion of the environment in general and in specific terms. It discussed the possible impact of the environment on the enterprise and hence PBFMS. In Chapter 1 a PBFMS was defined in terms of the role it plays in the enterprise. This Chapter goes further to define the functions of an affective PBFMS. It firstly, recognises the fact that the human element is crucial in the decisions relating to the development and management of the PBFMS. It then discusses and describes functions and corresponding processes and activities that an effective PBFMS out to facilitate in construction enterprise as obtained from literature. Finally, it proposes a model on which the study is based Thus the next section briefly looks at the importance of the human element in the PBFMS.

Human Element in PBFMS

The definition in Chapter 1 noted that a systematically arranged collection of knowledge, tools, technique, procedures and policies that facilitates the carrying out of the roles and functions of an enterprise. These include the provision of information for decision making at all levels of management in order to fulfil the primary objective of delivering projects efficiently and effectively so as to fulfil the mission of the enterprise
The definition emphasised that the presence of adequate skilled personnel plays an important part in the effectiveness of a PBFMS. It is the personnel who make decisions, take actions and use the PBFMS. At the operational level, they design PBFMS infrastructure in terms of the procuring the necessary equipment and software in case of an IT based. They coordinate, organise and plan for work related to the PBFMS functions. Through the deployment of their knowledge and skills, they are expected to use the most appropriate techniques and tools when capturing data and processing financial information for projects. At the strategic level, they also formulate policies, regulations and procedures and use efficient and effective practises when managing, developing and sustaining the PBFMS operations. In a construction enterprise, such persons include a project manager, estimator, project planners, accountants, IT personnel and management (or/and the owner).
Of all the personnel mentioned, the latter is of crucial importance because of the decisions they make, for example, the need to invest, support and use the PBFMS (Fortune and White, 2006). They need to use the PBFMS to obtain project performance and financial information in order to control enterprise/project activities and resources. In addition, they also need to comply with the set policies and procedures, particularly those which relate to financial transactions. In this vein Basu et al, (2002) observed that management need to be committed to every aspect of the enterprise whether it is at strategic level or at operational level. Kearns (2007) broke down the concept of commitment into two by observing that management needs to support and be compliant to enterprise activities. Support meant the participation and involvement of management in the affairs of the enterprise including the PBFMS. Compliance meant that employees and in particular management especially of small enterprise need to observe enterprise’s policies, best practices of financial management and all aspects of good governance.
Having emphasised the need for management commitment to the PBFMS the discussion moves on to its functions in a construction enterprise.

Identifying the Functions of a PBFMS

The position of this study is that generic financial management systems found in enterprises of non-construction sectors of the economy are not well suited for SMCEs because of their inability to address the nature of the project oriented work organisation (Halpin, 1985, and Peterson, 2005). In particular, they do not adequately integrate both the financial, project and construction aspects found in SMCEs. However, an appropriate model may be adapted and developed from the various frameworks available in literature and thus be able to document the functions of a PBFMS.
This section therefore, looks at an overview of relevant frameworks available in literature with a view of analysing and developing a more detailed model for adapting as the best practice PBFMS model for the SMCEs. Included in the discussion are the (i) generic frameworks and (ii) construction specific scholar-developed models as discussed next.

Generic models

Three generic frameworks namely the (i) planning-control, (ii) accounting, and (iii) project management models have been identified and are each discussed.

Planning and control framework

The planning and control model is a basic model that assumes that a PBFMS should be based on two major functions performed by all enterprises, namely planning and controlling (Shai et al., 2006), as illustrated in Figure 3.1
Planning involves two aspects, strategic and operational. Strategy involves charting a future direction of the enterprise from which operational plans are derived. Naturally falling from planning is the control function which has three elements namely, monitoring, and control. Each of these aspects is discussed in detail later.

Accounting framework

This framework is based on two well established branches of accounting namely financial and management accounting. It presupposes that a PBFMS should be related to the two accounting functions as illustrated in Figure 3.2.
The financial accounting branch of an enterprise deals with the recording and compiling of financial transactions using generally accepted accounting principles (GAAP) and standards. The information is then used to produce financial reports for use by a wide range of stakeholders, particularly external parties including shareholders, investment analysts, government departments (e.g. tax and statistics), creditors, suppliers and other parties (Antony et al, 1992). The financial reports are aimed at providing periodic information about an enterprise regarding its trading performance, financial position and changes thereof (Glauttier et al., 1991). Financial accounting is historically oriented and places much emphasis on precision, evidence, standards and compliance. It views a firm as a whole and not its business units, divisions or projects. The financial reports form the basis for determining enterprise’s tax burden and appropriation of after-tax profits.
On the other hand, management accounting is a non-legal function, purely driven by management needs for obtaining timely and relevant information for use in making sound decisions (Garrison, 1981). Management accounting provides information for internal use in a format that is best understood by users and hence does not have to conform to GAAP. It is future oriented, pays more attention to business units of an enterprise (e.g. programmes, projects or phases of a project). Management accounting facilitates both strategic and operational planning and control. It therefore, provides a greater share of the information needed that a PBFMS should produce. The planning aspect provides future direction and permits enterprise organisation, coordination and resourcing to achieve its objectives. The control function ensures economic and efficient use of resources by minimising wastage and abuse of resources and assets.
In Figure 3.2 data flows is shown to flow in both directions in the two systems. This is because though each branch of accounting has a different focus, when combined they provide the necessary holistic information needed by an enterprise, for example, the performance of the previous year as compiled by the financial function is normally the starting point for decisions relating to the setting of turnover targets for the following year. However, the distinction between the two sub-systems normally increases with the size of the firm. For the purposes of this study the roles and functions of a PBFMS will be more inclined to those of management accounting function because of the need to guide management in the operations of the enterprise, that is, projects. It will have less to do with the production of financial statements.

Project management body of knowledge

Project management consists of a number of processes as espoused by the various project management associations. The processes are normally detailed through a body of knowledge (BoK) developed by each association. This section briefly describes the relevant knowledge areas for which project management contributes to documenting the PBFMS functions.
The BoKs are generic in nature and are meant to provide guidelines that suit all types of projects, including construction projects. In addition, the knowledge in each BoK is arranged differently, for example, the PMBoK of the Project Management Institute (PMI) and the APMBoK of the Association of Project Managers have different items related to projects as summarised in Table 3.1. Inevitably the arrangement emphasises different aspects of project management and in so doing differentiates the focus of each model.
The 4^th Edition of the APMBoK (APM, 2005), for example, emphasises that projects must be utilised as a means of achieving organisational strategic plan (Morris et al, 2006). This aspect is also emphasised by Meredith and Mantel (2003) who noted that project conceptualisation and selection must be a response to the environment’s opportunity but in alignment with the strategic plan of the organisation. In case of a construction enterprise which executes already conceptualised projects, the role of a strategic plan should be to guide the identification of target markets where the enterprise selects its projects and responds to clients’ project tender adverts. The APMBoK provides seven sections and 52 sub-themes depicting the knowledge.

Acknowledgement 
Statement of originality and acknowledgement of sources 
Glossary of terms 
Thesis summary 
CHAPTER 1: GENERAL INTRODUCTION 
1.1 Preamble
1.2 Background
1.3 Role of SMEs
1.4 Definition of Operational Terms
1.5 Research Study Definition
1.6 Overview of the Research Approach
1.7 Perceived Contribution to Knowledge
1.8 Chapter Summary
CHAPTER 2: THE ENVIRONMENT OF PROJECT BASED INFORMATION SYSTEMS
2.1 Introduction
2.2 Framework of analysis for further discussion
2.3 The Proprietor
2.4 The Enterprise
2.5 The Enterprise External Environment
2.6 The Construction Industry
2.7 Challenges and Problems of SMCEs
2.8 Chapter Conclusion
CHAPTER 3:PROJECT BASED FINANCIAL SYSTEM: THEORY AND PRACTICE
3.1 Introduction
3.2 Human Element in PBFMS
3.3 Identifying the Functions of a PBFMS
3.4 Strategic Planning
3.5 Project Planning
3.6 Project Monitoring and Control
3.7 Chapter Conclusion
CHAPTER 4: METHODOLOGY 
4.1 Introduction
4.2 The Research Questions
4.3 The Research Paradigms
4.4 Research Taxonomy
4.5 Hypotheses
4.6 Study Population
4.7 Sampling Frame
4.8 Research Design Process
4.9 Design of the Measuring Instrument
4.10 Ethical Issues in the Study
4.11 Chapter Conclusion
CHAPTER 5: DATA ANALYSIS AND PRESENTATION OF FINDINGS 
5.1 Introduction
5.2 Response Profile
5.3 Data Analysis Management Process
5.4 Demographics of the Enterprises which Responded
5.5 Adequacy of Strategic Management in SMCEs
5.6 Adequacy of Project Planning and Control in SMCEs
5.7 Management Commitment to the PBFMS
5.8 Overall assessment of the state of the PBFMS
5.9 Performance of Enterprises
5.10 Relating the Past performance to PBFMS
5.11 Chapter Conclusion
CHAPTER 6:DISCUSSION OF FINDINGS 
6.1 Introduction
6.2 Implication of the Enterprise Response Profile
6.3 Adequacy of PBFMS
6.4 Implications of Findings – the Strategic Management Component
6.5 Implications of Findings – the Project Planning and Control Component
6.6.Implications of Findings- the Management Commitment Component
6.7 Adequacy of the PBFMS and its contribution to Performance
6.8 Revisiting the proposed PBFMS model
6.9 Contribution to Knowledge by the Study
6.10 Study Limitations
CHAPTER 7: CONCLUSION AND RECOMMENDATIONS 
7.1 Introduction
7.2 Conclusions
7.3 Recommendations
REFERENCES 
APPENDICES
GET THE COMPLETE PROJECT
ADEQUACY OF PROJECT BASED FINANCIAL MANAGEMENT SYSTEMS OF SMALL AND MEDIUM CONSTRUCTION ENTERPRISES IN BOTSWANA