Why Project Accounting Benefits Architects
When project teams are confident in knowing where each project stands, they’re confident in knowing where the financial health of the entire firm stands.
by Lucas Hayden
Project accounting is—or should be—the lifeblood of all project-based organizations, but architecture firms are a special breed. Because these firms balance multiple complex projects at once, many of which have different costs associated with them, proper project accounting often provides an extra challenge—and extra reward when done correctly. What is project accounting for architects, and why is it so important? In this blog, we will take a closer look.
What is Project Accounting?
Project accounting includes monitoring the finances, profitability, and resources of projects. Every direct or indirect cost should attribute directly to a project. Project accounting must be done at every stage of the project lifecycle, from initiation to execution to closeout.
There’s a lot of overlap between project accounting and project management; the finances of the project hold a direct line to the status of the project, and more and more, Project Managers are expected to keep a pulse on the finances of projects, not just the logistics.
The Benefits of Project Accounting for Architects
Turning the corner and beginning to put project accounting best practices into place is certainly an adjustment for your business—but it’s well worth it. Why?
As an architecture firm, projects are your business. When project teams are confident in knowing where each project stands, they’re confident in knowing where the financial health of the entire firm stands. Let’s walk through the smaller benefits that come together to form this big picture.
Clarity and Control Over Projects
Far too many projects start out with good intentions and what seems to be reasonable deadlines, then surprises and adjustments occur. The project team didn’t have the information available to predict or suggest these unexpected events and are left scrambling. Before you know it, the project is totally derailed, and it ends up being late and over budget.
But, when project teams take the time to manage the financials of a project, it unlocks a new world of insight for your stakeholders. Project Managers and executives now have all the information they need at their fingertips to closely monitor project status. They can see current project costs, upcoming expenses, and how profitable the project is at any given time. They can see when the project is starting to creep into the red and quickly course correct to bring it back from the brink.
An integrated, project-based ERP tool with real-time dashboards and custom reporting puts all project accounting information in one system and makes it even easier to get this crucial real-time data in front of your stakeholders. We will talk more about the role an ERP plays in achieving the benefits of project accounting later in this blog.
Assigning the Right Resources at the Right Time
An architecture firm's most important resource is its people. They make projects come to life—both in conducting the actual project requirements and organizing the project accounting and logistics. Whether a project succeeds or fails is all about getting the right people staffed and funded accordingly.
With accurate project accounting, Project Managers will know exactly how much money is set aside for staff salaries and other associated costs. This enables them to compare how many people they think they need for a project with how many they can reasonably hire and take action accordingly.
Even better, they can understand the staff budget in context with the profitability and financial status of the entire project. They may discover the 30 employees they set money aside for might actually be too many and they can course correct and choose to allocate the extra money to strengthening other parts of the project. On the other hand, they may suddenly discover that the project is understaffed and can assess the status of the entire project to determine if and where they can pull money from and resolve it or if they need to have a larger discussion of adjusting the project scope.
Cloud ERP solutions with project accounting functionality enable businesses to optimize their critical resources while forecasting future demands, costs, and planning capacity—helping to take the guesswork and manual effort out of resource management.
Reduce Errors and Redundant Work
Proper project accounting requires strong organization and regular monitoring of all projects. Once a firm gets into the habit of updating the project financial status as soon as changes happen, it provides key project stakeholders with the latest information and can reduce errors.
For example, once an outstanding invoice receives payment, it should be marked as paid and the income should be reflected in the project reports right away. This will help reduce the chance of the Project Manager reaching out to the client again asking for payment and either causing tension with that client or resulting in payment being sent again.
Project-based ERP systems are helping to automate project accounting for architects. Project teams can rely on automated calculations and data updates, helping to reduce data entry errors and redundant work.
How a Project-Based ERP Brings it all Together
Acting on project accounting best practices and transforming your firm’s processes might seem intimidating, especially for firms that manage their projects and financials in spreadsheets or legacy solutions. Proper project accounting requires that teams see the whole picture—not an easy task when they have to navigate a dozen spreadsheets and even more versions of the truth.
Project-based ERP solutions open businesses up to a new world of automated project management, financials, and project accounting. Project data across the organization is captured and stored in a secure, central database that’s easily accessible by authorized users from any connected device to eliminate wasted hours spent updating and managing individual spreadsheets or hunting for information. By managing transactions, costs, and revenue in one single solution, every dollar is tied to a project and is updated in real-time, so stakeholders have visibility into the architecture firm’s health on demand.
We’ve achieved return on our investment in Unanet A/E with efficiency improvements alone – we can get the detailed financial data we need quickly, right when we need it. Unanet A/E has also added visibility and accountability. Now, every Project Manager knows exactly how much money is in their project budget and how much they’re spending, which is critical when you’re working big projects with tight budgets.
To learn more about project profitability and how a project-based ERP can automate the process, download our white paper.