Accounting is the process of collecting and communicating financial information to meet legal requirements, business management requirements, plus internal and external stakeholders’ needs.
Different forms of accounting are used in an organisation to provide information for statutory purposes and for running the business.
Financial accounting follows strict procedures to monitor the business and provides accounts that meet the needs of the tax authorities, shareholders, internal and external stakeholders, and the board. Management accounts are much more flexible in content and provide information that is essential for the business to function and for managers to make day-to-day decisions.
P3 managers need to understand at least the basics of financial accounting terms and techniques. However, the world of the P3 manager is dominated by the need to track and control finance. So, a detailed understanding of the accounting needs of projects, programmes and portfolios, plus an understanding of the relationship with the organisation’s financial accounting systems and reporting, is essential.
It is useful for P3 managers to be able to interpret and evaluate a balance sheet and profit and loss statements. This enables them to understand, for example, the finances of the host organisation, partners or providers. Particularly at programme and portfolio level, P3 managers will need to communicate with sponsors and finance directors where a mutual understanding of financial terms is essential.
Financial accounting is not designed to provide information specifically for the needs of P3 management. These are met by tools and reports that track expenditure in real time and produce forecasts that allow decisions to be made. Reports from P3 accounting are aggregated at programme and portfolio level to enable strategic decisions.
Financial information from an organisation’s range of projects, programmes and portfolios needs to be monitored and tracked. In many organisations this is achieved through links between P3 IT systems and the financial accounting IT systems.