What Is Project Accounting?
Project accounting focuses on the financial transactions related to managing projects, including costs, billing and revenue. Project accounting is often a component of a project-based enterprise resource planning (ERP) or professional services automation (PSA) system, although it can also be used independently.
What is the difference between project accounting and standard accounting software?
Unlike project accounting software, standard accounting systems do not factor in the complex dimensions that projects bring to a business and their impact on business processes. Projects are truly an afterthought in standard accounting systems and require customisations to operate with a project point of view, which results in higher up-front costs and a higher total cost of ownership.
On the other hand, project accounting software specialises in the accounting functions essential to project-based organisations.
Who Uses Project Accounting?
Project-based businesses that derive revenues and profits from the projects they manage for their clients use project accounting to power their business and enable success.
Project Accounting for Architecture and Engineering (A&E) Firms
Whether your A&E firm is small and looking to grow or a larger sophisticated organisation, a project accounting system helps you analyse your current state and plan your leap to the next level.
With Deltek project accounting, Elliot Wood runs the business on facts rather than just on hunches.
Project Accounting for Marketing Agencies
Marketing and creative agencies value project accounting because it makes managing finances easier. A project accounting system takes care of the agency’s left-brain activities, leaving right-brained creatives free to do what they do best.
Project Accounting for Consulting Firms
Project accounting software supports the financial functions that are unique to a consulting firm’s engagement lifecycle, ensuring that they have visibility and control across all of their projects.
What Is The Business Value of Project Accounting Software?
Project-based organisations have distinct requirements, and they need to view their business in three dimensions: accounts, organisations (departments or business units), and projects.
Project management excellence is at the core of high-performing project-based firms. Unfortunately, generic accounting programs like QuickBooks fall short on functionality that project-based firms require to be successful—planning and managing resources, handling project variation and complexity and easily adapting to customer requests. Generic solutions struggle to provide deliverables tied to projects. Businesses often respond by using predictive costing methods and reconciliation to connect accounts receivable and accounts payable transactions. They may spend weeks summarizing data so leaders can make business decisions.
A project accounting solution helps firms make better business decisions through improved visibility and control across all projects. Every transaction is tied to a general ledger account, an organisation (the individual or team doing the work) and a project (the product or service delivered to a customer). Linking these elements produces accurate and timely deliverables that are the lifeblood of any business:
- Financial reports
- Project status reports
- Project P&L
- A robust audit trail
Project accounting systems add value to project-based organisations because they:
What Are the Key Features of Project Accounting?
Effective project accounting includes these key features, many of which help to maximise productivity and revenue:
- Financial management: Finance teams handle many responsibilities that are key to success and growth. Project accounting software streamlines back-office processes by:
- Reporting on project costs, revenues, profits and operations
- Managing cost and charge rates
- Shortening the billing cycle and improving accuracy by creating draft and final invoices electronically to be reviewed and approved online
- Budget and Forecasting:Project-based accounting tracks costs for every transaction, and every transaction is tied to a project. Projects can be grouped by portfolio or product line, or broken down into line items, work breakdown structures and charge codes governing the costing of individual resources. The system monitors and reports on forecast and actual costs. You’ll know which projects are most profitable, which are operating at a loss, and which project managers have the best track records.
- Revenue Recognition: A variety of features efficiently apply the steps of revenue recognition standards.
- Manage Indirect Rates: Without a project accounting system, it’s challenging to manage the costs of doing business (rent, employer’s portion of payroll taxes, etc.) that aren’t directly tied to a project. An indirect rate derived from these costs will help you cover all costs.
- Billing and Invoicing: Unlike generic systems, project-based accounting generates bills based on customers’ formulas—in customer-specific formats—generated from pre-validated and approved charges, thus reducing questions about invoices, speeding up payments and improving cash flow.
- Time and Expenses: A web-based time and expense entry system with automated approval and project allocation allows you to share real-time project information, capture and report data in different currencies and create an audit trail. Information is consolidated into one database, streamlining business processes and eliminating redundancy and error.
- Project Reporting and Dashboards: Business intelligence turns a data-rich, knowledge-poor organisation into a knowledge-rich organisation. You can assess results by project, department, account, customer, organisation, vendor, etc. Each dashboard is tied to a KPI or metric.
Six Tips for Choosing the Right Project Accounting Solution
The selection process is more important than ever, because you’re not just buying a tool; you’re choosing a trustworthy partner who will collaborate with you through the digital transformation of your business. Whether you’re seeking a new project accounting system or re-evaluating vendors, consider these criteria:
- A comprehensive, purpose-built solution: Your project accounting system should be designed with your industry in mind, not a generic solution requiring customisation to your requirements. Choose a solution that gives your organisation and project managers the greatest visibility so you can plan ahead.
- A respected industry reputation: Is your vendor a respected leader in your industry? Look outside of the product and observe the vendor’s influence in the industry.
- Vendor product accountability: Your vendor should own and be accountable for the solution and its roadmap. If a vendor cannot be fully transparent, you may open your organisation up to risk.
- Scalability: Look for a solution that can easily accommodate your company’s growth strategy.
- Transparent total cost of ownership: Recurring costs should be clear from day one. Pricing models should outline all details.
- Invested in customer care: Look for a vendor independently recognised as having superior and flexible customer service plans, your main line of communication after implementation.
How Do Deltek Project Accounting Systems Power Project Success?
The Nucleus Research 2021 ERP Technology Value Matrix named Deltek the leader for project based businesses—for the eighth time. In the value matrix, Deltek outranks many ERP competitors because its applications are purpose-built for businesses across a range of project-based industries.
“Deltek is a leader…as its project-centric ERP systems continues to drive value and win contracts for its customers”
Nucleus Research 2021 ERP Technology Value Matrix
At Deltek our mission is to deliver solutions that help our customers connect and automate the project lifecycle that fuels their business. We believe that better software means better projects. Our industry-focused expertise makes your projects successful and helps you achieve performance that maximises productivity and revenue.