I first found out about the concept of different kinds of money shortly after I was married. I don’t mean different currencies or different denominations. I’m talking different types of money based on where it came from, how it should be spent, or what “pot” it is tracked in. My wife and I received some cash for a wedding gift. Even though I was responsible for managing our finances, she told me in no uncertain terms that the gift money we received should not be mixed with our regular “spending cash” or deposited in our checking account. It was given to us as a gift and it should be specifically on gift-like things. I found this annoying and irrational at the time, but being one to pick my battles I let it go and merely grumbled under my breath about it. It years before I recognized why different kinds of money exist, and the importance of understanding this concept when managing projects.

Companies fund projects from different pools of money based on the nature of the project and which financial aspects they are trying to focus on. Recurring projects that are necessary to keep the wheels on the bus are funded out of cash flow—basically, money coming in from ongoing operations is used to fund those projects. Think of this as the regular “spending cash” in my domestic example. These projects are usually expected to provide significant payback rather quickly. They are usually the projects that help keep the company in business and provide incremental improvements in products.

Contrast that with strategic projects, which do not offer the quick payback, and may not offer any payback at all. These projects are typically longer, riskier, and more expensive, and are usually intended to close substantial strategic gaps (real or perceived) or to start the company down an entirely new path. Because they usually aren’t going to be done anytime soon, they are often funded from different sources—either from a company’s reserves or through long-term debt. These types of projects are similar to the gift money my wife and I found ourselves with after our wedding, money to spend on things we normally wouldn’t buy.

[...]

So why does it matter to you as a project manager where the money came from or how it is handled? As long as you don’t blow through it faster than you said you would and have to go and ask for more, it’s all the same, right? Well, if times are good and your project is relatively small and low risk, chances are it probably isn’t that relevant. Unfortunately, times are not the best right now, and there seem to be a lot of expensive, high risk, bet-the-company projects going on right now. (At least, I have seen a lot more, but that may also be a function of my personal experience.) Either way, the kind of money funding your project heavily influences decisions made about your project.

Read the entire article at ProjectConnections.