How Project Accounting Can Help With Your ABCs
Activity-based costing was created to help you track costs to have a better understanding of the profitability associated to a given group of tasks. Simple enough right? But trying to manage this by GL accounts could get cumbersome fairly quickly. This is why there are project accounting solutions available to help you manage these costs at a more granular level. Here are some scenarios where having a project accounting solution will help you more efficiently manage your ABCs:
1. When you need a P&L report by activity/project, customer or department
When you need to start looking at your costs sliced and diced in different ways, rather than spend extensive amounts of time calculating and allocating percentages of these costs across multiple budgets, you will already have your costs coded to the appropriate activities.
2. When resources work on activities for other departments or projects
The growing trend is cross-disciplinary teams, but the struggle with this is that the department who is primarily responsible for this resource no longer wants to absorb the entire overhead cost for this employee (vacations, training, benefits, etc.). These costs should now be distributed throughout the different departments with whom this particular resource is working for, therefore not penalizing the “lending” group with all the costs and not over valuing the “borrowing” group with lower costs per activity.
3. When you have more than one company in your organization working on the same project
With complex business structures brings more intricate business rules, but this also allows you to take advantage of synergies between your different organizations. When these different groups work on the same activities, products, or projects across different companies this allows you to reduce your costs. By having a system that will allow your different companies to allocate costs to common projects, this in turn will automatically create the inter-company transactions and mark-ups for all companies involved therefore allowing you to have a more accurate tracking of your actual costs.
4. When the majority of your projects have different structures
It is easier to follow your ABCs when all of your activities follow a similar format. When all of your projects have unique structures, it makes it more time consuming to appropriately allocate all of your costs across the different groups. By setting your distribution to affect all of the appropriate accounts as they are being entered into the system, this will allow you to ensure that they are being allotted to the appropriate accounts.
5. When you want your operations to be accountable for their budgets
Project managers will look at the overall bank of resources with their objective being to get the job done. By adding the objective of “getting the job done at the lowest cost” this will make them more aware of their spending habits but this is hard to do with they are not aware of their exact costs with post-markup charges. This is why by allowing them to access these reports that include the real-time costs to date, they will be able to stay more on-track in accordance to their budgets as information is available as it is entered into the system and not after the fact.
The easiest way to keep track of your ABCs is with an integrated solution. This way once your setup has been completed, the appropriate people within your organization will have the visibility to the exact costs as information is entered into the system and you can be assured that the costs are going to the appropriate accounts.
By starting with a timesheet where your employees and other resources will enter their time, this will allow you to be more accurate with your activity costs as well as the distribution of your resource’s overhead based on the time allocated to the different activities.
The next step is to empower your project managers to follow their costs in real-time to ensure that they are staying on budget. This will also reduce your administrativerequests as managers will be able to pull these reports on their own without any manipulations required by your finance team.
Finally, with an integrated solution executives will be able to have a global snapshot of their entire organization without having to merge several reports together. This gives you the opportunity to spend more time analyzing the results than extrapolating them.
With a project accounting solution, calculating your costs really does become as easy as knowing your ABCs.
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