Financial Management and the Photogrammetric Project Manager
By Stanley C. Budhram and J. Edward Kunz; edited by David Nale

Introduction
Until recently, domestic and foreign financial management and analysis remained a specialized field of knowledge practiced by those with impressive educational credentials such as Masters of Business Administration (MBA), or years of apprenticeship and training such as Certified Public Accountants (CPA). MBAs and CPAs, to this day, remain few and far between in the photogrammetric mapping industry. An even smaller number of photogrammetric mapping project managers (PMs) maintain the aforementioned credentials.
      Throughout the post-World War II industrial era (1946-1995), and prior to the information era (1996-present), the photogrammetric mapping industry was transformed from small U.S.-based professional organizations to large U.S.-based high-tech companies. A so-called critical mass was reached somewhere around 1996. The spread of the Internet, Internet-based commerce, and the privatization of government-only mapping capabilities were contributing factors in opening of U.S. photogrammetric mapping industry to foreign competition.
      Many of the larger U.S.-based photogrammetric firms continued to cling to old-style management techniques. These firms failed to realize that, as communications technology evolved, and as foreign nations started producing high-quality digital mapping products at lower prices, a new skill set was expected of the photogrammetric mapping project manager (PM).
      In the resultant environment, competitive pressures in the form of lower foreign production costs have forced many U.S. photogrammetric mapping firms to either outsource or subcontract substantial portions of their production to offshore firms. For many years, PMs successfully dealt with specific financial management issues, including ensuring that projects priced in U.S. dollars were completed on time and within budget. However, the average PM was unaccustomed to dealing with the complexity of accounting principles that might include amortizing U.S.-built equipment sent to a foreign subcontractor, or calculating the true value of foreign currency transactions. They may also have been unprepared for language and cultural differences.
      PMs often tend to avoid involvement in foreign-based production projects. Whenever they do undertake management of such a project, their financial management skills and less-than-optimal cultural experience has a tendency to create a "subcontractor crisis" mentality, and it is possible for foreign-based production projects to remain uncompleted. The subcontractor's relationship with the U.S. firm may deteriorate, and reasons for this falling-out may not be fully understood within the organization.
      In today's highly competitive environment, alternatives to the "subcontractor crisis approach" of project management are imperative to preserve a project's profitability and a client's level of satisfaction.
      This article proposes an alternative approach based on skill sets and organizational adjustments that allow project managers to work successfully with foreign subcontractors. These adjustments should also help to bring projects to completion on time, within budget, and to a client's satisfaction. Under discussion are general principles of foreign-operations accounting, cultural communications skills, and organizational restructuring.

Accounting Principles
Our rapidly changing global economic environment and the effect of foreign competition on the photogrammetric mapping industry have created a need for a more comprehensive understanding of accounting among senior management personnel and PMs. Financial accounting statements are essential for business executives, investors, creditors, governments, etc. These statements must be fair, complete, easy to understand, and should facilitate analysis.
      A body of accounting theory was developed by several organizations, including among them the American Institute of Certified Public Accountants (AICPA). This theoretical foundation includes a set of fundamental assumptions, accounting objectives, and what is known as Generally Accepted Accounting Principles (GAAP). These GAAP principles have begun to gain acceptance worldwide in the form of Internationally Accepted Accounting Standards. As the U.S. photogrammetric mapping industry begins to outsource substantial amounts of work to foreign-based subcontractors, PMs should be able to understand and apply GAAP. It is also imperative that members of senior management develop relationships with foreign subcontractors who are based in countries that subscribe to U.S. GAAP or International Accounting Standards.
      Due to the complexities of accounting and space limitations, the authors have elected to focus on three specific accounting areas: depreciation, revenue recognition, and matching.
      Regarding depreciation of equipment, a PM must be able to complete equations and present senior management personnel with information such as double-declining-balance depreciation of equipment. A simple way to calculate this is to divide by years of life and then multiply by two. It can be visually represented as:

Year One: (Full Cost / Years of Life) X 2 = Depreciation Expense
           $100,000 / 3 Years of Life X 2 = $66,666.66

Remaining years (replace "Full Cost" with "Book Value"):
              Book Value / Years of Life X 2 = Depreciation Expense
              $60,000 / 2 Years of Life X 2 = $60,000.00

     Another accounting skill that PMs already possess is the ability to understand and report streams of revenue. The principle of revenue recognition is currently a hot topic in many photogrammetric mapping firms. Questions such as "How should revenues be recognized?" and "Which country's GAAP should rule when foreign-based subcontractors are brought into the mix?" are discussed in many boardrooms. Revenue is generally recognized when both of the following conditions are met: once the earnings process is complete or virtually complete, and once an exchange has taken place.
      The above implies that revenues are usually recognized at the point of sale. Under certain conditions, however, revenue recognition can take place on a different basis, such as with percentage completion, completed contract, production units, and installment or cost-recovery basis.
      In the U.S. photogrammetric mapping industry, PMs are tasked with using and understanding the percentage-completion method, which is most common. In today's foreign-based subcontracting environment PMs should now be able to understand and apply revenue recognition based upon production units, and also based upon which country's GAAP governs.
      When senior managers make decisions that concern the viability of an alliance with a foreign-based subcontractor, they may also ask the PM to perform a "matching" exercise for them. The PM should be able to determine net income by matching net related costs and expenses against revenue for the reporting period. The cost of the product sold plus all expenses should be matched against respective revenues. This exercise allows senior managers to narrow the list of potential subcontractors, selecting the one that has the highest respective revenues to cost and expenses as depicted in the following equation:

Net Related Cost (NRC)+ Expenses (EX) Matched to Respective Revenues (RR) = Net Income (NI)
A. $50,000 (NRC)+$30,000 (EX) = $80,000 > $100,000 (RR) = $20,000 (NI)
B. $54,000 (NRC)+$30,000 (EX) = $84,000 > $100,000 (RR) = $16,000 (NI)
      The above equation would lead the PM to recommend Option A to senior managers.
      The matching exercise serves a dual purpose of providing senior managers with information that meets U.S. GAAP, and assists them in determining which option is the greater revenue generator.

Foreign Operations Accounting
In the days of U.S.-only photogrammetric mapping production, knowledge of foreign-operations accounting was essentially unknown to senior managers and their PMs. Over the past five years it has become apparent in the photogrammetric mapping industry that tremendous monetary gains or losses can result when building relations with foreign-based subcontractors. However, when delving into foreign operations, U.S. photogrammetric mapping firms and PMs should be aware of the following:

• Tax implications
• Rate of inflation (both domestic and foreign)
• Political environment (U.S. or international GAAP acceptance)
• Technology (computer-based accounting programs)
• Foreign labor skill sets (accounting principles)
• Time-zone differences
• Language and numbering system (whether English, Roman, Arabic, etc.)
• Financial reporting requirements, especially as the exchange rate fluctuates.

     Senior managers may call upon a PM to provide information concerning the financial relationship between a U.S. firm and its foreign-based subcontractor. Foreign currency translations provide the basis for understanding whether or not a business relationship between a U.S. photogrammetric mapping firm and its foreign-based subcontractor is working. Objectives of foreign currency translations are as follows:

• To provide information that is generally compatible with the expected economic effects of a rate change on the U.S. photogrammetric mapping firm's cash flow and equity
• To reflect, in consolidated statements, the financial results and relationships of the individual consolidated entities (U.S. firm and foreign-based subcontractor) as measured in their functional currencies, in conformity with U.S. GAAP.

     Photogrammetric PMs should be prepared to provide senior managers with advice concerning equipment purchases for specific projects, especially those that involve foreign-based subcontractors.
      In today's global photogrammetric mapping economy, it is possible that it may be less expensive for a U.S. firm to purchase a foreign-made stereoplotter and place it in a foreign-based subcontractor's location, than it would to ship U.S. equipment to that foreign subcontractor. The PM should be able to determine if this is a viable solution based upon one's ability to understand and depict foreign currency transactions.
      Foreign currency transactions are denominated in a currency other than the functional currency of the United States. A change in the exchange rates can result in either a gain or a loss.
      For example, assume that on November 1, 1999, the fictitious American Mapping Inc. (AMI) purchased a stereoplotter from an unrelated French company for use at AMI's foreign-owned subcontractor's facility in Europe. The cost of the instrument was 100,000 francs, payable on January 30, 2001. The following exchange rate information applies:

November 1, 1999      1 franc = $0.30
December 31, 1999     1 franc = $0.32
January 30, 2001       1 franc = $0.33

November 1, 1999      Cost of the Plotter 100,000 X .30 = $30,000
December 31, 1999     Loss on Exchange 100,000 (.32 - .30) = $2,000
January 31, 2001       Loss on Exchange 100,000 (.33 - .32) = $1,000
                    Total Cost of Equipment = $33,000
                    Total Loss on Exchange = $3,000
    
      While foreign currencies are constantly changing compared to the U.S. dollar, the above example serves to provide senior managers with the total cost information for a U.S.-owned, foreign-based production tool. It also provides them with historical data (two years worth) of U.S. dollar verses French franc currency fluctuations.

Cultural Communications Skills
As was mentioned above, from the mid-1990s to today, a growing number of U.S. photogrammetric mapping firms have sought out foreign-based subcontractors to decrease production costs, increase contract acquisition, and improve their bottom line. American firms have targeted three geographical regions. These are the Indian Subcontinent, East Asia/Micronesia, and Latin America. American photogrammetric mapping firms believed initially that lower prices from these alliances would outweigh any cultural differences. However, some American firms were not prepared for the hard work that is required to overcome linguistic and cultural challenges presented when foreign subcontractors were used.
      Here the authors have chosen to provide examples of four possible areas where cultural differences will arise:

• The language barrier
• Direct verses indirect communications strategies
• Conflict as a business tool
• Work-ethic differences

     As one of the reigning economic superpowers of the world, the United States has been successful in moving the international language of business to English. Americans have begun to expect that all business conversations to be conducted in their native tongue. This has led some American business executives, and project managers as well, to become inpatient with members of other cultures whom they cannot immediately understand. As impatience grows, so does the volume of the voice. As a result, members of other cultures become insecure about their accent and/or lack of fluency and may, in turn, become frustrated.
      It is imperative, when dealing with a foreign subcontractor, for a PM to understand language differences and exhibit the appropriate amount of patience and grace when conducting conversations with those who speak accented English. The following three principles should be applied when conducting business conversations:

• Avoid slang or colloquialisms
• Speak slowly and succinctly
• Avoid easily misunderstood humor

PMs must also expect, and should be able to interpret, differences in writing styles and spelling from foreign subcontractors.
      Over the past hundred or so years, Americans have developed a style of business that can best be called "the direct approach." They get to the point quickly, which is well accepted in the U.S., U.K, parts of Europe, and in many of the former British colonies. However, other cultures tend to focus on personal relationships and trust as paramount factors in forging business relationships. Some potential foreign business partners may see Americans as being too aggressive, too money-hungry, and therefore, untrustworthy.
      It is imperative, when dealing with a foreign subcontractor, for a PM to understand these stylistic differences. When a PM is given the task of managing a project that includes a foreign-based subcontractor, he or she may be faced with spending a significant amount of time developing a trusting relationship with the subcontractor. PMs and senior managers must recognize that building trust requires a significant amount of time, perhaps six months or more, as well as significant face-to-face interaction. The trusting relationship will, in time, lead to a mutually acceptable contract. This cultural investment should be factored into a project as an increase in the amount of project management hours estimated, and an increase in the cost of travel to a foreign subcontractor's facility.
      One of the most marked differences between Americans and other cultures is how conflict is perceived within a business environment. Americans see conflict as an expected part of the business process. They tend to approach it head-on so that problems and conflicts, whether actual or perceived, can be discussed openly and ultimately resolved by senior managers. These business people are not averse to speaking up at meetings and aggressively promoting their own ideas, even if these ideas are in conflict with present notions. In the aforementioned setting, conflict is used as a way of introducing new ideas and new ways of thinking, and this can be perceived quite positively by those in attendance.
     Conflict in places such as India, Latin America and East Asia/Micronesia is not perceived in this same manner. In these cultures, conflict is thought of negatively. Business and social practices have evolved to minimize conflict and confrontation. Many business people from other cultures become uncomfortable when conflicts arise during negotiations, or as a project progresses. They may revert to saying what they perceive will minimize conflict, agreeing with the Americans and promising to meet their demands when, in reality, they may be unable or unwilling to follow through with their promises.
      Another area of contention between Western and other cultures is in the area of the perceived work ethic. For decades, Westerners have been among the world's most productive workers. The Western business culture, including photogrammetric mapping project management, has evolved around the ever-present idea of multi-tasking. PMs have a million and one things to do, including writing reports, managing multiple projects, attending meetings, ensuring that production deadlines are met, and so forth. The American workplace is a hectic place, and PMs and senior managers expect that other cultures will operate and perceive work in the same fashion as they do.
      Other cultures tend to view work in a much more easygoing manner. For example, in Latin American, some businesses close down for nearly three hours in the middle of the afternoon. This siesta period is ingrained in the culture, and for good reason considering the heat and humidity, but Westerners may incorrectly perceive it as a lack of a strong work ethic.
      Cultural misunderstandings can affect American PMs in a very negative fashion. They tend to become disappointed and sometimes bitter when it appears that the foreign subcontractor is not working hard enough. It is imperative that PMs and senior managers understand cultural differences as to how work is perceived in that culture, and factor them into project scheduling and resource allocation.

Organizational Restructuring
In many photogrammetric mapping companies, management's role is to select a senior executive to serve as the principal-in-charge who will provide direction and oversight of the PM and the production team.
      The PM then serves as the person of contact (POC) for all communications within the project, and also monitors project schedules and budget allocations, quality-control checks, selected work products, and finally intervenes by informing senior managers when resource allocations or other issues arise.
      The project manager is a major player in the project. The organization provides a setting in which PMs can influence individuals to do their particular job. This structure sets the stage to achieve a pattern of collaborative efforts between the PMs and the photogrammetrists who are creating the product. The organization is cost-effective, that is, one that achieves a collaborative effort but minimizes duplication of effort.
      The organizational structure set out above is a projectized structure. This projectized organization is a loosely functional structure, one in which there is extended lateral mobility. It relies upon clear and constant communication between the PM and all functional groups. The projectized organization also requires teamwork at all levels, plus a principal-in-charge who is available to provide direction to the PM and to the project team. It works best in situations where production is completed in the same building, or within reasonable proximity to the project manager and the principal-in-charge.
      As outsourcing to foreign-based subcontractors becomes more prevalent, adjustments to the projectized organization become imperative to preserve project profitability and client satisfaction. The authors hereby suggest the following addition to the projectized structure: a Project Manager of Subcontracting (PMOS).
      The PMOS occupies a specific niche as the individual charged with serving as liaison between the organization (senior managers and other PMs) and subcontractors. However, he or she will be required to have the broadest experience and knowledge of anyone in the organization. Assuming that any project subcontracted to a foreign firm involves the production of DTMs for use in digital orthophoto production, the PMOS should possess knowledge and experience in the following:

• DTM production processes and procedures
• DTM quality-assurance and quality-control processes and procedures
• Accounting and financial management
• Currency conversion ¥ Contract law
• Verbal and written communications
• Negotiating techniques
• International affairs
• Foreign monetary policies
• Foreign customs and excise duties
• U.S. import and export policies
• Accepted foreign business practices
• Project management software packages such as Microsoft Project¨
• E-mail and FTP usage
• Foreign shipping processes and procedures
• Foreign travel (holding a valid passport)
• Mentoring and teaching
• Multitasking

     Senior managers will designate the PMOS as the point of contact (POC) for foreign photogrammetric subcontractors. His or her responsibilities include direct communication with members of the organization (senior managers, PMs, and project production teams) and with similar personnel at the subcontractor's site.
      One of the most important roles a PMOS should play within an organization is that of a mentor. As a U.S. photogrammetric mapping firm shifts production tasks to foreign subcontractors, the need arises for more project managers to have the ability to become project managers of subcontracting. The PMOS will originally serve as the sole POC between a foreign subcontractor and the U.S. firm. Gradually, and after a certain period of study, another PM may be introduced to the foreign subcontractor by the PMOS. This "new PMOS" will have the necessary knowledge and skills, as previously acknowledged, to successfully manage domestic or foreign-based production projects.

Summary
Over the past five years, the U.S. photogrammetric mapping industry has begun to embrace the use of foreign-based subcontractors to reduce costs, improve contract acquisition, and to enhance the bottom line. However, as foreign subcontractors are employed to perform specific tasks, these U.S. firms face a variety of challenges that include employing heretofore unnecessary accounting skills, understanding and employing foreign-operations-accounting processes and procedures, and facing cultural communications issues.
      Effective project managers may be in place within an organization, but they and their senior managers must ask themselves the following question. "Do we have the necessary accounting knowledge, cultural communications skills and organizational structure in place to effectively manage foreign-based production?"

About the Authors:
Stanley C. Budhram is a senior project manager with BAE SYSTEMS ADR. He may be contacted via e-mail at [email protected]. J. Edward Kunz is a marketing project manager with BAE SYSTEMS ADR. He may be contacted via e-mail at [email protected]. David Nale is the president at Emap International. He may be contacted via e-mail at [email protected]

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