You probably hear a lot about the importance of data. Gathering the numbers about your projects and firm, using business intelligence…it all sounds good, but what is it really for? Well, in the case of project accounting, a lot.
Project accounting is the practice of tracking and analyzing the financials of your individual projects. It offers a multitude of benefits, from improved profitability to better staffing decisions and beyond.
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 resources that go into a project and their resulting revenue, you can drill down and truly understand what was successful and what wasn’t.
Without project accounting, you’ll still know whether or not a certain project went over budget. But if you break the project down into phases and tasks, and track activities and expenses, you learn what’s happening at every step of the project’s life. Did one specific task erode your profits? Did your employees excel at their assignments? Did you underestimate your expenses? These are questions you can easily answer when you methodically monitor your efforts. From there, you’ll understand what you need to do in order to improve profits.
2. Quickly Make the Right Decisions: With project accounting, you’re able to make important choices midway through your project’s life, instead of only seeing what went wrong at the end. This, naturally, is closely tied to the better visibility that project accounting affords you. While post-mortems offer valuable lessons for next time, it’s ideal to steer your current projects towards success.
For example, if you see that you’ve used 80% of your budget but are only 40% done with the project, you’ll know that you have make corrections as soon as possible. Or, if you’re juggling multiple projects and you’re not sure which deserves more attention, perhaps you’ll find that one client is much more profitable than another. You can then decide where you want to focus.
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 work that helps you grow and pass up projects that won’t be fruitful. You can ensure that your employees are assigned to the tasks that they’re best suited to. When you make choices like these, you’ll see a rise in efficiency and profits.
4. Predict (and Hire for) Long-Term Growth: All of the insights that project accounting offers will enable you to more accurately predict your firm’s future. You’ll get 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 grow your team. This, in turn, will smooth bumps down the road when it comes to salaries, which are likely your biggest expense.
While there are even more benefits to project accounting, these four are perhaps the most tangible. All in all, they make a pretty good case for collecting all that data.
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