Welcome to Part 3 of our Project Accounting series!
In Part 1 – we introduced Project Accounting and talked at length about what makes it such a great tool for project-driven businesses. In case you missed that article, you can read it here.
In Part 2 – we covered the Principles, Best Procedures, and Revenue Recognition Methods of Project Accounting.
And today, we are going to talk about the most important subject – the benefits of Project Accounting.
Why does your project-driven business really need it?
What Makes Project Accounting So Important For Your Business?
As a project-driven business, any new project is a great thing! But how do you keep tighter control of your project? And by control, we are talking about the budget as well as accountability in delivering every project on time and within budget.
Truth be told, not all projects are created equal, which is one of the reasons we at ‘Projects Expert’ are such big advocates of Project Accounting. Bigger projects need more resources, time, and budget – and tracking all of these is crucial to the project’s success.
With Project Accounting, you are in a better position to weigh the cost-benefit of every individual project and ensure that it doesn’t roll off track.
Is your project demanding more resources than it is worth, eating into your profit margins?
Are some of the tasks you are performing fall outside your company’s scope of work?
Is the project actually efficient?
Project Accounting helps you evaluate all this and much more.
When you perform accounting on a per-project basis, you get a much clearer picture of project-specific costs. These accounting methods help you improve the way you work to be more efficient with both time and money, adding value to team performance and improving margins as well.
Since project accounting is very detail-oriented, it allows you to track project performance to the minutest micro-level, ensuring that you and your team are meeting your company’s financial goals while also delivering high-quality products/services ensuring 100% client satisfaction.
By tracking and analyzing every financial transaction associated with a project (be it people, material cost, or outside services hired to complete the project), Project Accounting allows you to improve profitability, efficiency, and staff morale.
6 Benefits Of Project Accounting
Both the practice and software used for Project Accounting come with many benefits. Below, we list the advantages of project accounting in more detail.
1. Gives Complete Clarity on Project Profitability
As one can imagine, increased profitability is the most straightforward benefit of using project accounting. By closely tracking and monitoring your project, you get a more comprehensive picture of where the project is succeeding beautifully, and where it is lagging and might need tighter controls or modifications.
You might still know that a project is bleeding money without project accounting, but you may not be able to pinpoint the exact problem until you break down the project into tasks and phases and link every single cost incurred in the project’s lifecycle. And this methodical monitoring is what makes project accounting so successful at improving profits.
2. Allows You to Quickly Make Important Decisions
As you track a project at a micro-level, you are in a better position to identify problem areas and rectify them immediately. Project Accounting gives you the chance to make modifications during the lifecycle of a project, instead of evaluating what went wrong at the end of the project.
With better visibility of all project financials, you can re-adjust the budget and steer a project toward success with ease.
3. Let’s You Improve Business Strategy
With Project Accounting, you accumulate key data about project performance. And when you are juggling various projects at the same time, this data comes in very handy to predict larger trends. You can easily see which projects are making more money, which ones are running behind schedule, and which ones need management changes to be successful. It also allows you to manage your resources better, as you can see which employees are performing better and which ones might be underutilized. All this information helps you improve your business strategy so that your enterprise is on the right growth path.
4. Improved Alignment
If your company tackles projects involving coordination between several departments, alignment becomes much easier with Project Accounting. The various departments and teams can create reports and track progress simultaneously to reconcile through different financial periods. Additionally, billing and contract delivery also become more exact and prompter.
5. A Chance to Predict Future Growth
The many insights you get through Project Accounting allow you to predict your company’s future and make key decisions. The minute track allows decision-makers to steer the company in the right direction by focusing more on projects that generate bigger revenues and pass on projects that are not worth the effort.
With this clarity, your sales team knows what projects to pitch for and how to manage the project pipeline for stronger cash flow.
6. Enhances Team Accountability and Collaboration
With close monitoring of projects, your team becomes more accountable for tasks assigned to them. They clearly understand how their performance impacts project profitability, motivating them to do their job better. This greater visibility that project accounting software provides also enhances smooth collaboration between various teams associated with a project. Employees can share project accounting KPIs and track how their counterparts are performing, facilitating smooth functioning between departments.
These benefits of Project Accounting are crucial for not just steady cash flow but also long-term planning for your enterprise as a whole. The practice of breaking down every project into profits, successes, and failures goes a long way toward addressing any potential roadblocks to your company’s success.
Do You Need A Project Accountant?
Given the above benefits of Project Accounting, it makes sense that you achieve it the right way. While project accounting is an excellent tool to closely track and monitor all ongoing projects, it does need to be accurate to be of use.
This is where a Project Accountant can step in. While project managers are busy addressing the on-site issues of a project, an accountant can keep closer tabs on the financials to organize costs and manage budgets more efficiently. For larger projects, a dedicated project accountant is the best choice, as they can handle tasks like:
· Monitoring all financial progress
· Tracking variances
· Approving expenses
· Handle project billing and ensure its accuracy
· Ensure payments are received
· Project financial reporting to maintain all relevant income and expense records
· Manage project accounts with auditors
· Develop financial systems with the IT team to make them more user-friendly for the Projects team
If you run a project-driven business, a dedicated project accountant might be worth looking into.
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About Projects Expert
Projects Expert is the first-of-its-kind Oracle partner that specialises in Project Centric Enterprise Solutions. We aim to deliver sustainable, robust, and business-friendly Oracle solutions for Projects driven organisations.