Common Project Accounting Mistakes & How to Remedy Them

For those of us who tend to embody the type-A persona over the type-B, planning projects to the very last detail comes as second nature. For example; few, if any, of us would begin a cross-country road trip without first planning out where we want to go, what we want to see and how we want to get there. And during the trip, a traveler will often review how far they’ve traveled, how far they have left to go and what adjustments to their planned route may be necessary. Even then, as they say, the best laid plans of mice and men often go astray.

So how do you go about setting up a plan for your project that will give your organization the desired outcome? Unfortunately, these lessons are often lost on the modern world of accounting, making poor planning, or no planning at all, one of the most costly mistakes in project accounting. So just how much will your organization be affected by poor project planning?

Let’s take a look at these issues.

Flying Blind

Just like a trip with no destination, companies often make the mistake of planning out a system for project accounting without giving much thought to their destination. In this case, the “destination” is the kind of reporting they would want to generate three, six or nine months down the road. You can get a better grasp on the desired outcome of a project by asking questions like: what kind of key performance indicators do they want to be able to measure the company by? What kind of information will they need to be able to evaluate their company strategy for the next quarter? What kind of figures will they need to be able to determine the success or failure of the given project?

By taking adequate time at the very beginning to determine what information you want to have down the road, you can then properly implement project accounting.

Asking the Wrong Questions

So maybe you have done your research and have determined the key performance indicators you will be using for your project and their desired outcome. But how do you know that you’ve implemented the correct KPIs to begin with? Going back to our road trip analogy, if you were planning a trip across country, you wouldn’t use a map that focuses on local points of interest in one particular region. Why? Because it would be too specific and too narrow in focus to be of practical benefit.

Similarly, many organizations make the mistake of designing their data collection system with one department in mind, and with extremely fine-tuned KPIs limiting the site and scope of the project as a whole. The problem with this approach is that your average employee doesn’t think like an accountant. As a result, just like a very detailed, but very specific map, a data collection system set up in this way will create more trouble than it’s worth. Employees will get frustrated with it and can end up submitting inaccurate reports because of the flawed system.

So what do you need to do to avoid this mistake? Focus on efficient reporting. You will need ample information to track the project’s progress, but try not to create a system that focuses on acquiring every possible scrap of data, to the point that it bogs your employees – and your project – down. Decide what you need to track, and design the system to collect that information as succinctly as possible.

Here are some great options to consider when determining the data sets you’ll use in your project:

  • Billiability
  • Adherence to estimate
  • Percentage of projects that are profitable
  • Available resources
  • Scope of milestones within timeline

Make Adjustments Accordingly

In the end, it’s all about revisiting the initial plan. Just as you periodically review your progress on a trip, it’s essential to periodically review how well your project accounting plan is working. All too often, companies put a method into place and never revisit it.

Unfortunately, the truth of the matter is, you may not get it right the first time, and that’s okay. Only through periodic reviews, every three or six months, will you be able to see what is working, what isn’t working and what might work better with a little tweaking.

By taking the time to plan with your end goal in mind, designing the most efficient route to that goal and periodically review your progress, you can avoid some of the most common project accounting mistakes.

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