What is a Project Based ERP?
The acronym ERP stands for Enterprise Resource Planning system. The system includes financials, pipeline, customer relationship management, time, expense, resourcing, project management, reporting, and dashboarding. When the word, system, is referenced, avoid thinking of software only. A system includes the people that operate the software and processes that keep order and discipline over the inputs and outputs of the software. This overall system is the hub of all activity in the business. It should serve as the single source of truth for business decisions.
The one source of truth is a dream state for most organizations, as many companies struggle with disparate systems, lack of processes and procedures, and untrained personnel. What happens under the hood is more like the chaos depicted below. Everyone in the organization is running around with PowerPoint charts, email is flying, and Excel is the book of record??? Projects are still being executed and completed but the inefficiencies are tangible. There is a better way and we will be discussing that throughout this article.
Elements of a Project Based ERP
As we think about what makes up an ERP system we should consider the project lifecycle. The ERP should have all the elements of the lifecycle as a basic part of the system. It all starts with a customer with a need. That need turns into a proposal which ultimately turns into a project. That project is planned, monitored, and executed. Along the way every transaction against the project must be captured and accounted for by the system.
Customer Relationship Management
Customer Relationship Management (CRM) is a discipline that manages your company’s interaction with current and potential customers. CRM has become a priority to improve overall relationships with customers, specifically to focus on customer retention (stickiness) and to drive sales growth. Tracking and documenting customer touches is a critical part of the overall discipline because fact-based data and the resultant analytics play a major role in understanding and meeting customers’ needs.
An opportunity pipeline is the visualization and/or measurement of contracts or projects that you will attempt to win over time. The time horizon can be “time now” to 5+ years into the future depending on the planning needs of your business or the length of your sales cycle. It is the gauge for your business growth and it should reflect your company’s overall business strategy.
Resource management is the “art” of ensuring that the business has the appropriate resources it needs at the time they are needed. For professional services businesses, that resource is labor, and multiple variables can go into the definition of appropriate, i.e. skill set, location, bill rate, cost rate, etc. Resourcing involves multiple functional groups, project teams, and human resources so there are a lot of moving parts. Forecasting of resources should start during the opportunity and/or proposal phase of a project so that the stakeholders have time to plan for the needed people and skill types. Resource planning continues throughout the lifecycle of the project. Collaboration and communication are major parts of producing a resource plan.
Budgeting, Planning, and Forecasting
A budget represents what the business believes is achievable and what it intends to accomplish. The organization establishes a budget that becomes the baseline for performance management. There may be multiple budgets established such as indirect, project, capital, etc. Budgeting and Planning is typically accomplished with an Annual Operating Plan (AOP) and a Long-Range Plan (LRP). The AOP is for the current year and an LRP can go from 0–5+ years depending on the needs of the business. Budgeting can be performed “Bottom Up” or “Top Down”. Forecasting is the activity of predicting what will happen in the future. A forecast can be compartmentalized as short, medium, or long-term. It is based on the best assumptions known at the time of the development of the forecast. These assumptions will change over time and the forecast will need to be updated to reflect the changes. Comparison of budget and forecast is the basis for variance analysis and corrective action plans.
Time and Expense
Capturing the time charged to a project is the basis for how much the project costs and, in some cases, how much is actually billed. Time tracking is a critical first step in improving the performance of project based services organizations, as it enables managers to understand what is being worked on, the cost, what work is billable vs. non-billable, what the margin is, and how well you are performing compared to the plan. Expense tracking is sometimes overlooked it can be quite time consuming if you do not have the right tool in place for your employees and finance team. Making sure that employee travel expenses are correct and within government or corporate regulations can be tricky, so you want to have a tool that automates this process.
Top of mind for several project based businesses and government contractors is complying with government regulations. Timekeeping is one of the most popular, but project based ERP can support several other types of compliance as well.
Keep in mind that project based ERP software alone is not enough to guarantee compliance; it's up to an organization to implement and obey best practices and ensure compliance.
Project accounting, sometimes called total project accounting, is simply accounting for all projects in your portfolio. Total project accounting consists of reporting on both direct and indirect projects. In other words, every cost or transaction is attributed to a project. This gives executives, accounting, and project management insight of true costs and forecasts, ensuring that all stakeholders have the information needed to make optimum decisions. Examples of indirect costs are fringe benefits, overhead, General and Administrative Expenses (G&A).
Billing and Revenue Recognition
Cash is KING! Invoicing and revenue recognition should support all contract types (Fixed Price, Time & Materials and Cost Plus contracts), and comply with GAAP regulations. Automation of the professional services “bid-to-bill” lifecycle allows organizations to forecast and track revenue across different contract types, shorten invoice cycles, and provide authorized managers with real-time insight. By having a single integrated system to manage the entire services bid-to-bill cycle, disparate standalone systems can be replaced, resulting in greater productivity, fewer errors, lower costs, and faster invoice processing times. A CFO suggested that having an integrated system allowed the senior staff to deliver billable work rather than unbillable administration, resulting in higher utilization and more profit.
Project driven organizations are fueled by project performance. So, having a system that provides the needed timely insight is critical. Keep in mind an unbilled hour is an hour that can’t be recovered. The financials consist of general ledger, accounts receivable, accounts payable, and cost pool calculations (allocations), and should be integrated with project management, project accounting, and resource scheduling. What you are really looking for is one software for pipeline, projects, people, and financials. The benefits of one software are below:
- Eliminates unproductive time managing transactions
- Creates more time to transform the performance of your organization
- Provides real-time visual insight of true costs (direct and indirect), margin, revenue, and forecasts
- Ensures managers have the information needed to make optimized decisions about the project portfolio and resource effectiveness
We all come to work for fulfillment but also to get paid. Outsourcing or doing payroll in-house, are both acceptable practices. Either way, knowing the actual cost (i.e. direct cost + cost of benefits + federal, state & local taxes, etc.) of every employee is a must have for professional services businesses. Without this information the business will not be able to calculate profit.
Purchasing is the process of finding materials, services, and equipment from an external source to be used in the execution of a project. This process also includes the agreement of terms and conditions as well as the price for the goods and services. The goal of procurement is to get the best price for quality products or qualified/skilled labor within the timeline needed. A procurement system will keep track of the agreement between the buyer and seller as well as the vendor quality, billings, deliveries, etc. With so much outsourcing for specialty labor, having a robust purchasing system is important to manage costs.
Real-Time Reporting, Analytics, and Dashboards—Business Intelligence
Looking in the rearview mirror is interesting and there are reasons to do so. However, the majority of the time we are in the driver’s seat we should be looking ahead, assessing what is in front of us. That same concept is especially true in managing a project based organization as project profitability is a leading, versus a lagging, indicator for the business. Having real-time information is critical, and being able to use analytics to predict the future will help make good business decisions going forward. Reports and dashboards should provide useful and appropriate role-based information instead of outdated, inaccurate data. Dashboards also need to be real-time and have great visuals so you can quickly identify problem areas and course correct.
Project Management Control Center
A truly integrated project based ERP system will be the project manager and project team’s best friend. All needed information will be at their fingertips. Looking at real-time revenue, utilization, profit, cost, schedule, and other metrics puts the power of information into the hands of the project manager. There are very few systems that can deliver what-if capability, revenue modeling, resource planning, budgeting, planning, billing, and financials all in one integrated tool. If you pick the right system, it will be the control center for the project team.
What are the Characteristics of a Project?
Quite simply a project is a planned piece of work. That work can be a good or a service. The characteristics of a project are:
- Scope of work agreed to by the customer and the contractor
- Start and stop dates
- A cost and a projected fee
So, scope, schedule, and cost are the Big 3 of every project! Regardless of the size or nature of the project, these are always the Big 3.
There are more characteristics of a project listed below:
- Governed by a legal document or contract
- Resources are needed to execute the project
- Risk exists in the performance of the project
There are two major types of costs: direct and indirect. What differentiates them is direct costs are related to one final cost objective (project or contract) and indirect costs have multiple cost objectives (benefits more than just one project). Direct projects are billable to the customer. An indirect project collects indirect costs such as overhead, fringe, G&A.
The concept of total project accounting is that every single cost has a project, and can be accomplished in a true project based system.
The people that are responsible for the project are called Project Managers (PM). The PM has a very tough job because he/she wears many hats. Leadership and social skills are critical for a PM to be effective. The PM should also be analytical, organized, prescient, and product knowledgeable. Success of a project will depend on the PM being able to communicate, coordinate, and lead a team to a common goal. They will need a system to help them coordinate all the moving parts.
Generic vs Project Based ERP
Generic ERPs are still prevalent in the marketplace today, but they are costly and very difficult to maintain if your business is projects. These ERPs typically do not have the project as the center of the universe. Generic ERPs focus on the account and the department/organization, and the project is accounted for with a separate tool. In a generic world the project is an afterthought.
Is your generic ERP no longer a good fit? Learn why being forced to change can be a good thing!
What Makes a Project Based ERP Special?
- Transactions are attached to a project, department/organization, and a general ledger account
- A time collection system attaches charges directly to the tasks that the individual works on
- Costing architecture is tailorable for each project and task (Work Breakdown Structure (WBS))
- Visibility is provided into the financials of each project (i.e. profit, cost, billing)
- Security and efficiency with cloud or on-premise license options
- A resourcing tool provides project managers with information on what skills are available at what time
- Complete financial reporting with the project in mind
- Project based key performance indicators to help drive the organizational and project goals
- System controls that send notifications when project restraints are met, configured to the needs of your business
- Ability to scale with your organization
If projects are in your organization’s DNA, a project based ERP system should be in your future. Effectively training your staff on ERP software is key to making the most of your system and seeing these benefits.
Choosing Your ERP Software
Struggling to pick the right software for your organization? Learn more about how Unanet compares to its competitors:
Project Based ERP Ecosystem
A true project based ERP will revolve around the project itself. Analytics should be available natively for every function performed by the ERP. It is all about planning, performing, and accounting for the project.
Want to learn more about project based ERP and the benefits it can bring your business? Download our ebook!