In our last post, we went over 4 essential benefits of project accounting that are directly related to the hard numbers it gives you. Insights into project profitability, better long-term planning, steady cash flow...these are all undeniably great reasons to undertake project accounting. However there are also a number of more qualitative benefits that still ultimately boost your profits.
Before we start, let’s quickly review the definition of project accounting. It’s the practice of accounting on a project-by-project basis. It’s applicable to any firm that works on projects, engagements, matters, jobs, or any other defined work assignment for a client. In order to do it right, you need to track all of the resources that go into each component of your projects, as well as the resulting revenue. When you break each project down into its own profit center, you can assess its successes and failures much more clearly and take the appropriate actions.
In order to get the data you need to look at project details, you have to involve every member of your team. Project managers and senior associates must take direct responsibility for the financials of their projects. They essentially become CEOs of their individual projects, as they have access to and control over the profits and losses of each project. Even entry-level employees need to enter their time and expenses (including if you only work on fixed fee projects) and understand the KPIs related to their work.
With this in mind, let’s take a look at 5 more benefits of project accounting.
1. Cultivate Employee Accountability: When your staff has to track and analyze their project financials, they’ll have a much clearer understanding of how their actions affect profit margins. And with the visibility that project accounting offers, there’s no excuse for ignorance.
The link between your employees’ efforts and project performance will become even more tangible if you tie incentives like bonuses to the latter. Whether or not you choose to do this, you’re likely to see your team work harder thanks to this newfound accountability.
2. Enhance Collaboration: Project accounting necessitates the sharing of information because all team members have to contribute or monitor data. When people take greater responsibility for project outcomes, they’ll want to know all of the results of their work. With the right software, it’s also very easy to share your project accounting key performance indicators (KPIs).
Due to these factors, project accounting facilitates conversations between and among departments. Sometimes it may be beneficial for a team to narrow their focus and not look at the big picture, but it’s often helpful for employees to have more context surrounding their work. When they understand more how what they do relates to the firm as a whole, they often have more motivation.
3. Eliminate Confusion: Project accounting requires set processes and methodical tracking of KPIs. This means that it’s easiest when there are routines and standard methods of working. These regimens aren’t just good for getting the data you need—they also make work less stressful for everyone involved.
By breaking projects down into phases and tasks, and assigning them to specific team members, they’ll understand exactly they need to do. You can use your project accounting software to make things even more straightforward. In BQE Core, for example, if you allocate tasks to specific employees, their time cards will be automatically populated by the assignments they need to work on. You can also create to-dos for your team members that, when marked as complete in Core’s mobile app, can be converted right into time entries. Processes like these remove the friction during data entry while keeping everyone on track.
4. Stick to the Schedule: Project accounting keeps you from falling behind in two distinct ways. First, related to point number three in our list, when everyone’s role is clear and the whole team knows what their next steps are, it’s easier to stay on schedule.
Admittedly, our second reason doesn't exactly fit into our qualitative theme, but it's important to note. Project accounting gives you the insights you need for better efficiency and more accurate timelines. When you hold a magnifying glass up to your projects, you’re able to see where processes are breaking down, and act to fix them. Perhaps a specific employee doesn’t have the training to complete a task on time, or there’s something about your team’s approach that’s causing you to go over. With project accounting, you’re able to pinpoint flaws and trends and then address them.
Similarly, when you gather data on multiple projects that are similar to each other, you’ll be able to form estimates that are more accurate. This is especially helpful if you find that your team is already very efficient but is still falling behind schedule. When you have trend data, you’ll understand if you’ve simply been undercutting your efforts with unrealistic timelines.
5. Make Your Clients and Staff Happier: There are a number of reasons why project accounting will foster better moods across the board. In terms of your clients, your financial strength will allow you to give them adequate attention and provide the best service. They’ll appreciate your timely work, accurate numbers, and professionalism.
Employees, meanwhile, will feel empowered by their greater responsibility. They can be more effective at their jobs, prove their worth, and be fairly compensated for doing so. You team will also appreciate the context that project accounting gives them. As we noted earlier, this can provide some wonderful motivation.
While improved morale is a noteworthy benefit in its own right, it’s worthwhile to mention that it can boost profits as well. Naturally, your clients are more likely to do repeat business with you if they’re satisfied, and your employees will work harder when they’re happy.
Given all of these qualitative and quantitative benefits, you owe it to yourself, your employees, your clients, and your firm to start practicing project accounting.