project-based erp for dummies
what in the world is erp?
Some 88 percent of companies use some type of ERP, an enterprise resource planning system that integrates a range of business information, from financial to customer to HR, and a lot more. But ERPs are not one size fits all. This is especially true among companies that execute projects for external customers.
Project-Based ERP for Dummies introduces the basic concepts of ERP systems that are intended to serve project-based businesses. Check out Article 1 "What in the World is ERP?"of the new Project-Based ERP for Dummies article series and see how your business can benefit from a purpose-built ERP system.
Before we go any further, we need to talk about ERP. Well begin with what the acronym stands for: enterprise resource planning. ERP systems are designed to integrate an organizations business information, including finance/accounting, customer relationship management, management accounting, procurement, human resources, budgeting, sales order entry, materials, and manufacturing.
It makes sense to integrate all these functions into one ERP system because it allows your company to establish business rules that will enforce critical processes. The whole idea is to seamlessly flow accurate and timely information between the different business functions. That gives leaders visibility into what is happening inside the enterprise, and a much greater control of the components of a business.
Whats an ERP like? Here are some key characteristics:
- There are transactional inputs.
- It has one central database for all information.
- Information is current (near real time).
- Its modular in design.
- It features open system architecture.
A project-based ERP has all of the above characteristics, just like any ERP. At its heart, though, it focuses all the processes and all the data on the companys central revenue generator: the project!
Project-based companies have their own distinct needs and requirements, (click to tweet) and they must be able to view their business in three dimensions. They need to be able to see the nature of the expense, what resource performed the work, and the project for which the work was accomplished. But take that one step further.
Generic ERP systems depict the business as flat (see Figure 1-1). They cant fundamentally understand the project dimension they simply try to pancake over the top of the vastness with some level of project information. Projects are truly an afterthought in the system design, and the system requires customizations to make it operate with a project point of view. That costs big bucks upfront and results in a higher total cost of ownership.
Beyond that, it often doesnt work well. Project-based businesses that attempt this pancake maneuver in their generic system find they have poor visibility, manual costing, manual reconciliations, assumed revenue calculations, and manufacturing systems that arent tied at all to projects for which the work is being done.
Figure 1-1: A generic ERP system with projects pan caked on top.
Generic solutions struggle to provide common deliverables that are tied to the project, and that struggle makes it difficult or impossible to produce an accurate view of project profitability and health. Businesses often respond by using predictive methods to approximate materials costs, they try reconciliation efforts to connect accounts receivable and accounts payable transactions, and they may spend weeks summing it all up into useful materials so leaders can make business decisions. Who wants to have no control over their project costs? Certainly not anyone who runs an effective business!
Now, put on your 3D glasses and take a look at what a truly project-based ERP can provide (click to tweet) (see Figure 1-2).
With a true project-based ERP system, every single transaction is tied to an account, an organization and you guessed it a project! Look a little further at these three important elements that are fundamental to success.
Figure 1-2: A Project Based System sees the business in 3D
- Account: The general ledger account that describes the expense. Examples include hotel costs, airfare, labor, or subcontracts. Think of this as a chart of accounts.
- Organization: This may describe a department, a functional group, or a product line. Most important, it describes who is doing the work.
- Project: This is the product or service being delivered to a customer or client. The project is where economic value is created within the firm, and where billings and revenues come from. Its the central activity that makes the business stay in business.
Linking these elements makes it possible to produce accurate and timely deliverables that are the lifeblood of any business, including:
- Financial reports
- Project status reports
When your corporate and project financial information are tied together through the system, you have unparalleled visibility and control of your business. That enables you to make decisions based on current, real-time information, instead of managing through a rearview mirror.