Potential Pitfalls of Project AccountingEmma
At the start of a project, ideas are fresh and everyone is excited and focused. As time wears on though, reality sets in. Timelines start to expand beyond what they were initially anticipated. The scope of the project starts to creep wider and wider. And at the same time, the budget starts to expand.
As the person overseeing project accounting, you don’t have overall responsibility for the assignment being a success or failure. However, you do have a responsibility to make sure that the project accounting side of things runs smoothly and efficiently. And that, any project accountant will attest, will in many ways be a large contributor to the overall success of the endeavour.
Unfortunately, project accounting, just like any other part of the project, is prone to errors. Being aware of some of the potential pitfalls before you begin, and how to overcome them, will help you to ensure you don’t fall prey to some of them.
- Lacking clear focus to your measurement.
The role of project accounting is to plan, measure and control the company’s expenditure on the project. Unless you have a very clear idea of the desired outcomes of the project offhand, it could be easy to identify measurement matrices that are inappropriate.
Curt Finch writes the following for Journyx: “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? If you were planning a … road 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.”
Make sure that you get a clear indication of where the project is headed before you outline your systems of measurement in order to ensure the practical benefit comes through.
- Getting greedy for data.
Once you’ve worked with the project manager to identify key performance indicators, you’re better placed to decide on which data sets to use for measurement. The key here is to choose your most powerful weapon. Trying to collect too much data will overwhelm and frustrate other employees. Even though it would be great to have details on every part of the project, other project users won’t feel the same. The more info you ask of them, the more they are likely to make mistakes or abandon the tracking tool. Ultimately it will lead to error-ridden data. Finch says:
“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.”
Finch suggests five useful data sets to consider:
- Adherence to estimate
- Percentage of projects that are profitable
- Available resources
- Scope of milestones within timeline
- Failing to back up your accounting software.
The world of project accounting is made up of accountants. We don’t think like IT people. But sometimes we ought to.
Failure to do so could lead to a project accounting horror story like this: You’ve sweated blood and tears your whole way through a project. You’ve tracked, measured and reported faithfully throughout. In the last week of the project, just as you are pulling all your information together to generate your final reports for the Exco, there is a glitch on the system and all your information is lost. You hadn’t thought to back up your systems since the project began. (If this sounds unbelievable, start asking your project accounting peers if something like this has ever happened to them!)
From the outset, work closely with IT when setting up your systems to understand when and where information will be saved and backed up.
Determining your project focus, streamlining your data sets and making initial plans to back up all your information can help you avoid a few grim project accounting errors. If you could do with some assistance in the field of project accounting, contact The Finance Team. Our experienced team of finance professionals will assist your company for the period of time you need them and no more.