After my wife and I first moved into our house, the first home improvement project was to replace an old sliding glass door in the family room. It should have been a simple project with the door and interior trim being replaced by me and my father on a Saturday, and the new trim painted on Sunday. But when we removed the old door frame we discovered some wood rot in the framing around the door. To replace that wood required the removal of some wainscoting by the door, cutting into the underlying drywall, replacing the framing and drywall. That consumed my entire weekend. In the meantime my wife decided she’d like the room better without the wainscoting so that meant tearing it all out, patching nail holes and repainting the room. Eventually before it was all over the carpet was replaced and new built-in book cases were added on both sides of the fireplace. My simple weekend project turned into a major endeavor. Of course, during this entire time my main concern was the growing cost of the project and the impact on our checkbook.
Accessible Project Data
Every business has a project at some point. In fact their whole business may be run consisting of numerous projects for many customers in a configure-to-order environment. (Hopefully any ‘scope creep’ is not of the magnitude I described above.) Regardless of the project scope and budget; nothing is more important to the Controller and Accountants than knowing the project’s data is accessible, accurate and auditable. They want a sliding glass door not to see and access their deck and backyard as I would at home, but to see and access their project data for tracking costs, revenue and profitability.
Project Budgets are needed; an initial baseline budget and modified budgets as the project progresses and additional variables come into play.
Burden Allocation for both budgets and actual costs. This can be very simple or quite sophisticated; and not all projects within a company are necessarily allocated the same. Establishing the correct burden hierarchies and rates is critical.
Cost collection includes receiving costs from many areas within the organization including time and attendance systems, purchasing, and accounts payable. If any of these are third-party systems, issues of integration and timing become important.
Project Billing and Revenue Recognition are key factors in financial reporting. Determining what costs can be billed, when they affect the company’s cash flow and whether a given project is generating cash or consuming cash. The recognition of the revenue affects project and company profitability.
Earned Value or Earned Value Management Systems (EVMS) computations are a means of measuring project performance by comparing the amount of work that was planned with what was actually accomplished to measure cost and schedule performance. A variety of earned value rules exist and may vary based on the type of project or sub-project task.
Estimates to Complete (ETC) and Estimates at Completion (EAC) are often calculated during the life-cycle of a project to determine the costs required to complete the project and whether it’ll be profitable at completion. If these predictions are timely and accurate the project managers and accountants can identify problems and take action to lessen or eliminate a potential loss while the project is still in progress. (ETCs and the EAC was my big concern with the family room remodeling!)
Of course all of the above may be affected by industry specific regulations, or government rules and regulations, for example, various Federal Acquisition Regulations (FARs) and Defense Acquisition Regulations (DFARs) and the Defense Contract Audit Agency (DCAA).
The big advantage with today’s modern relational databases and business intelligence tools is that getting this financial data from your ERP and Financial system is often easy and deployable to key financial personnel as reports or KPIs.