Project accounting is the practice of tracking and analyzing the financials of your individual projects or engagements and it transforms professional services firms. When you implement project accounting, you’ll see improvement in efficiency, client satisfaction, employee morale, and business profitability. In an earlier post, I provided an overview of project accounting. Now, I’ll zero in on the wide variety of benefits it offers.
1. Truly Understand Project Profitability
Increased profitability is the most widely cited and straightforward consequence of project accounting, and with good reason. By closely monitoring the costs that go into a project and their resulting impact, you can drill down and truly understand which costs were as planned and which ones exceeded.
2. Quickly Make the Right Decisions
With project accounting, you’re able to make important choices midway through your project, instead of only seeing what went wrong at the end. This, naturally, is closely tied to the better visibility that project accounting affords you. You’ll be able to see exactly where you are with the progress of your work, how much of your budget has been used, and other essential information you need to respond to scope creep.
3. Take Command of Your Business Strategy
As you accumulate data about all of your different projects, you’ll be able to see larger trends in the work you do. You might find that certain types of projects are more profitable than others, or that specific employees are better at completing various tasks. Then, you can guide your firm and team in the right direction. You can focus on projects that earn higher profits and pass up projects that won’t be fruitful.
4. Predict (and Hire for) Long-Term Growth
All of the insights that project accounting offers give you better visibility into your pipeline and have a stronger handle on cash flow. When you have this sort of understanding — and when you know what type of work you firm should focus on — you’ll make better hiring decisions. You’ll know which skills you need your new employees to have, and you’ll foresee when you’ll have the resources to strategically grow your team.
5. Cultivate Employee Accountability
When your staff has to track and analyze their own 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 performance will become even more tangible if you tie incentives like bonuses to their key performance indicators (KPIs).
6. 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 KPIs. Due to these factors, project accounting facilitates conversations between and among departments.
7. 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. By breaking projects down into phases and tasks, and assigning them to specific team members, they’ll understand exactly what they need to do and how much time they have to finish the task.
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. Processes like these remove the friction during data entry while keeping everyone on track.
8. Make Your Clients and Staff Happier
Project accounting fosters 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. Your team will also appreciate and be motivated by the context that project accounting gives them.
While improved morale is a noteworthy benefit in its own right, it’s worthwhile mentioning that it boosts 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.