Archive for November 22nd, 2010

Project Accounting – Do you really need it?

by Matthew Carmen on November 22, 2010

Let’s save answering the question posed in the title, for later on… lets first address a more fundamental question – What exactly is project accounting?

Project accounting is the act of tracking total costs of a project, from concept through implementation. This means all of the expenses, labor and capital expenditures related to completing any operational or strategic project. This project tracking can be done in tandem with the corporate accounting department (usually the case in large companies) or separately (as with small and midsized companies, when these companies actually perform project accounting). Depending on the size of the projects that a corporation is undertaking, the complexities of project accounting grow.

As the complexities of project accounting grow, technology plays a greater role. The business may be able to get away with Excel spreadsheet models – at least in the early stages of proving its concepts. This can continue to be useful for small companies that have small straight forward projects that are usually expense related. Once the use of internal labor, software development, and capital expenditures come into the mix, additional resources should be considered – irrespective of the size of the company – in order to reach conclusions successfully.

These added features include:

  1. Project accounting software – There are many packages on the market, from inexpensive versions that allow a small company to track their costs, to large modules that plug into a company’s SAP, Oracle, or other enterprise-class financial system. The larger and more expensive the software package, the more time and energy it will take to integrate into the company’s technology environment.
  2. Legal expertise – As a company’s projects become more intricate and complex, the project accounting office will need to understand things such as tax implications, capitalization of assets and labor, etc. The company’s legal and corporate finance teams will need to get involved.
  3. Information Technology – In most cases, new servers will need to be leased or purchased, power usage in the company’s datacenter will need to be reviewed (either with owned or outsourced datacenters). The datacenter strategy itself may need to be reviewed (depending on the size of the project, A large project may not fit into the company’s current datacenter), as well as any related labor costs going forward.
  4. Financial – The actions in this area of the company include the creation of a business case, business intelligence initiatives, the ability report on the successes of the project, activity based costing, budgeting, etc.
  5. Regulatory – depending on a company’s business, there may be regulatory issues that make project accounting necessary. Some regulatory programs may be tax deductable, while others just have to be done. Tracking regulatory projects is necessary to show that these are one-time costs associated with doing business.

Once a company has implemented the project accounting system that works best for its size and needs, something amazing things starts to happen, information that can be acted upon to make operational and strategic decisions is created. For example: In large scale projects – those that take place over years and have multiple layers of complexity – costs can be looked at by repeatable activity (i.e. labor during a certain stage of the project that happens at different locations) and ways in which these costs can be minimized become apparent. Business intelligence is then created to illustrate that having the right labor in the right place will minimize costs and keep the project on or below budget.

Conclusion

The time has come to finally address the question in the title! Project accounting, whether implemented on a small or large scale, can provide great value to more efficient management of the business. In these challenging economic times, managing a business at the highest level of efficiency is more important than ever. Reporting on and containing costs is a priority and should be pursued with great care and scrutiny. Not only do you need to have solid Project Accounting in your organization, your organization’s long-term success DEPENDS on it!

Matthew Carmen launched Datacenter Trust along with Marc Watley in February, 2010 and serves as Co-Founder & COO as well as Managing Partner of their Financial Intelligence practice. Datacenter Trust is a recently-launched consulting and services delivery firm, providing outsourced server hosting, bandwidth, cloud services, and IT financial intelligence and analysis services to growing businesses. Follow Datacenter Trust on Twitter @datacentertrust
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