Like the beloved Sesame Street Count Von Count character, your project accounting should be just as obsessive about tracking numbers – project management numbers that is. Many companies are very good about ensuring that their general accounting functions (things like their A/P and A/R balances, for example) are consistently maintained and reported to those who need this data. But when it comes to project accounting, too many companies fall short.
But first – what is project accounting?
Let’s start by comparing it to standard accounting, which most of us know. Standard accounting manages the financials using a company’s organizational structure – how divisions or departments are tracking (like their G&A, labor, etc.) compared to their budgeted amounts on a periodic basis. For those who embrace their arithmomania (a compulsive love of counting) and for those companies where growth is a key component of their future, there is another layer which is a must. Project accounting looks closely at the projects a company has undertaken most of which regularly cross departments and might last months or even years.
Let’s say, for example, company X wants to undergo a new green initiative in their office. Our standard accounting will keep good track of costs for things like the smart electronics to manage lighting and HVAC or the newly hired “Green Officer.” What standard accounting doesn’t do is manage the costs for the actual project, i.e. how much did it cost you to achieve your final goal. Things like:
- The project manager’s time to create and manage the project plan: the work breakdown structure and project hierarchies.
- Were deadlines met? If not, what the cost of missing those deadlines? If so, how did meeting those deadlines translate into cost savings?
- How is percentage of completion managed and tracked to budget?
- What long or short-term investments will need to be managed on an on-going basis once this project is complete?
But let’s take this a step further. Let’s say you need to perform a customer project – you’re going to implement that same green initiative in your customer’s office. You probably have access to someone who is really good at estimating the costs of a project, so you have this first step covered. You may not, though, have a good system for tracking those project costs to the actual costs which means for the entire project, you’re working with blinders and hoping that at end of the project, you’re not bankrupt. That’s where a good project accounting system will save you. Forbes.com contributor, Bill Connerly’s piece, “Businesses Lose Money From Bad Accounting,” says he’s surprised at “how many businesses do not know the profitability of each customer or project or order they have. For instance, a sign company could not tell … how much it cost them for a particular job they undertook. Their financial statements told them whether the entire business made money in the month” or not but there was no accounting in place to determine to which project the gain or loss was attributed.
Now, SOLUTIONS, please.
When you’re a small company doing your best to manage your business day-to-day, a smaller accounting solution, like Quick Books, serves your needs … for a while. J. Carlton Collins, CPA details those limitations in his piece “Practical Advice for Companies That Have Outgrown QuickBooks” (http://www.iyoungland.com/_pdfs/outgrown_quickbooks.pdf)
QuickBooks has two basic limitations:
• Limited accounting system features
• Limited database performance
If you run a smaller operation, these product characteristics are actually appealing … If your organization is rapidly expanding, however, you will eventually outgrow the QuickBooks feature set and database performance … growing companies often find they need more sophisticated features that aren’t offered by QuickBooks.
And therein lies the rub. Growth.
For companies who have “growth” as part of their future – and “growth” can be defined any number of ways like increase in revenues, employees or customers, higher profits, greater market share, etc. – they will outgrow these types of small accounting solutions and have to take the leap to accounting sophistication by finding a solution that manages both their standard accounting as well as their project accounting.
But before you take that leap alone, let’s get you a partner. As much as we all love Count Von Count, you should look to a partner who is just as obsessive about numbers, but without the funny accent. Your friends at Full Sail Partners are just what the Count ordered. Take, for example, this piece by Mark Lovstrom with Full Sail. He writes that growth is a KPI which should be analyzed with “a project KPI dashboard [that] can examine some simple indicators [to] allow a project manager to gauge which project(s) need more attention.” He goes on to list those items which should be closely examined in order to manage your project costs. Things like:
- Accounts Receivable
- Unbilled Labor
- Estimated to Complete (ETC) and/or Estimate at Completion (EAC)
In the end, we are all working toward success for our business. And to most of us, success means growth which then means managing every minute and every dollar – through project accounting – to achieve your success. Click to view this webinar by Full Sail Partners to learn more about how your particular style of growth can be achieved.
Count Von Count and all his Sesame Street friends will be proud of how much your project accounting has allowed your business to grow!