Real project accounting systems must offer a separate module or set of modules designed to capture and manage project information and a wide range of project-related transactions. If your business is project driven, then the breadth and depth of the project management functionality of an accounting package must be the main criteria for comparing competing systems.

The need to manage projects is one of those twists in the financial management process that makes it necessary to evaluate accounting software particularly carefully. For example, construction, consulting, engineering, and oil and gas are typically project-driven businesses. Federal, state and local governments are also project oriented. So you need to be certain that project management functionality is one of the core design foundations of the system you buy.

Of course, many businesses are involved in ad-hoc projects and do not need a full-blown project accounting system. An ad-hoc project is typically a marketing-, human resource- or technology-driven project that a company wants to track purely for purposes of cost containment through actual vs. budget variance reporting.

Ad-hoc projects can be handled through use of a special project segment in the general ledger chart of account code block or by use of transaction “tags” — project codes that can be tagged to transactions on entry — used in purchasing or accounts payable modules, for example. Each project then has a segment or tag and a name. The segment or tag codes may even have built-in logic to handle analysis at the sub-job or activity level. Budgets can then be associated with these segments or tags and variance reporting produced through the financial report writers. However, this is not true project accounting, merely a means of tracking some level of project-related transactions through the standard accounting modules. But, for occasional project management, this may be all the functionality you need.

Real Project Accounting

Real project accounting is significantly more complex than the demands of ad-hoc project management. The characteristics of a project-driven business include:

  • high numbers of open projects that have complex hierarchies of sub-jobs and activities
  • large amounts of capital, cost and revenue attributable to single projects
  • projects that involve multilevel management and multilocation delivery of services
  • joint venture projects that may involve combinations of internal and external partners
  • project contracts that are subject to penalty-driven performance and milestone billing criteria
  • project processes that require end-to-end management from purchasing to client rebilling

Clearly, this requires more than just an account segment or transaction tag to manage effectively. Real project accounting systems must offer a separate module or set of modules designed to capture and manage project information and a wide range of project-related transactions. The project transactions are usually stored in their own separate table that is fed with detail data from the sub-systems in the same way as the general ledger (see Project Accounting Flows, below).

Real project accounting systems must be able to handle the complexities of the following:

The project entity. A project is nothing other than another significant information entity or dimension in the accounting system. For a project-driven business, the project entity is as important as the account or company entities are in a regular business. Each project needs its own identity, structure or hierarchy, relationships, and life cycle to be managed effectively. The basic function of a project accounting module is to enable these project entities to be set up and maintained so the appropriate transaction data that is collected in other accounting modules can “flow-through” to this project entity for tracking and reporting purposes. The project entity will typically require the recording of various relationships and additional static information relating to the project, including:

  • sub-jobs and activities
  • locations and managers
  • units and budgets, currency exchange and markup rates
  • start, end and milestone dates
  • clients, contracts and partners
  • cost and revenue allocation rules
  • notes relating to the work-in-progress or life cycle of the project

Project hierarchies. Projects usually consist of one or more levels of jobs or activities that “roll-up” to the project. These activities may be of varying types depending on the project. The type of activity impacts the way the project is billed, for example, on a fixed fee, time and material, or cost plus percent basis. Each of these activities may be performed by a different partner, in a separate location, involve multicurrency costs or revenue billings, and have its own budget plans and forecasts. Therefore, it helps if this type of project structure can be navigated through the use of a “tree” browser that allows project managers or project accountants to browse through the project data and look at information pertaining to each level from different perspectives. The hierarchical nature of projects also means that drill-down capabilities, from project level to activity-level data, for example, should also be expected as part of the standard functionality of the project module. If project structures are broadly similar across the projects undertaken, it is useful to have a project structure “template and copy” function to ease the setup of new projects in the system.

Projects, clients and partners. Whereas ad-hoc projects are usually internal, complex projects are usually associated with contracts that involve clients and partners. In a sense, a project is a classic example of an “extended enterprise” of collaborating stakeholders. Consequently, project accounting systems must offer the ability to store and manage information about this extended enterprise of clients and partners and about the rules of the contract. Client information may include information such as billing cycles and markup rates, while contract information may include deadlines, billing milestones and non-performance penalties, for example. Clients may be set up in separate tables or client information can be added as part of the customer data in the accounts receivable module. In any case, integration of client accounting with accounts receivable and billing usually will be mandatory functionality.

Associating clients with projects provides the foundation for the flow-through of cost and fee-related billing. An easy and flexible rebilling process is a hallmark of a real project accounting system and demands not just the ability to automate the rebilling process but to allow for the definition of multiple invoice formats to suit the specific needs of the client. Being able to handle “override” editing of rebilling information before it is actually billed may be essential to ensure that billing exceptions can be handled as and when they occur. Rebilling schedules and the automation of the rebilling process are essential requirements of a complex project management system, which is further enhanced by the provision for tracking exception conditions, such as unbilled receivables by project.

Complex projects are seldom undertaken on a sole contractor basis. Outsourced service partners may be required either from within the business's own organization or from outside of it. This requires integration of the project module with the purchasing and accounts payable modules to link vendor “partners” to the project, again to allow the flow-through of project-related expenses. There may be an “owner” partner and several “performer” partners, so analysis may need to be performed at either level.

Also required are the capabilities to carry out rule-driven allocations of project costs to distribute them to the partners if appropriate. Costs not directly associated with a project may need to be combined into “cost pools” and then allocated out to projects using complex allocation rules and “stepped” dependency allocations. These costs may also need to be rebilled, this time to the partners rather than the clients, as may be the case in an oil and gas joint-venture project, for example. In some cases, cost reclassification rules may need to be applied to reanalyze booked costs to conform with the statutory demands of government projects.

Multinational projects. Projects today are not necessarily domestic affairs. Clients and partners may be based overseas, suppliers of products and services may be paid in foreign currencies, and your staff may be incurring T&E costs anywhere in the world. For most larger project-driven businesses, multicurrency and other multinational accounting functionality is essential. This means that the software must enable you to define project currencies and exchange rates and associate currencies and rates not only with suppliers and clients but also with partners that you may need to report to in a foreign currency. Multinational projects naturally tend to be large and complex, so it becomes even more important that there be an easy way to navigate the project structure and the relationships among all the parties working in this temporary, extended enterprise.

Project status. The status of any given project is probably the most important information that management needs to know about a project. In a nutshell, this means making the project costs visible in a variety of formats. Typical project status inquiries include:

  • project performance (actual project costs and revenues to date)
  • variance reporting (cost and revenue actuals vs. budgets)
  • project commitments (open purchase orders by project)
  • unbilled recognition (services or goods supplied but not rebilled to client)
  • performance by participant (project owner vs. project performer level)
  • costs incurred after the project is “closed” from a revenue rebilling perspective

The ability to view this performance data on-screen, instead of having to print a paper report, is a requirement for real-time project management. It is also helpful if these on-screen inquiries can be quickly charted, transferred to worksheets for further analysis, or used as the starting point for more detailed, investigative drill downs.

Project Accounting Software

Many accounting software suites contain a project or job costing module or the ability to define project-related account segments or transaction tags for analysis and reporting. But for the project-driven business, the important factor is the breadth and depth of the project management functionality and the completeness of the integration of the project module with other modules in the suite. Certain vendors specialize in project accounting in that their project management functionality is the central component of the design of their suite (see Some Project Accounting Specialists, below).

Some Project Accounting Specialists

VendorProductPrimary DatabaseComment

Concepts Dynamic Inc.
(847) 397-4400
http://www.conceptsdyn.comSeries
CDI Project Control SystemInformix RDBMS CDI Project Control SystemStrong project analysis via connectivity to OLAP tools. Deltek Systems Inc.
(703) 734-8606
http://www.deltek.com
CostpointSybase RDBMSSpecializes in government-related project accounting. Design Data Systems Corp.
(813) 539-1077
http://www.designdatasys.com
SQL*TimeOracle RDBMSNew work-order management module recently released.

Project accounting is a natural for taking advantage of the Internet, because while project accounting is usually managed centrally, the projects themselves are taking place remotely. This means that employees working on projects need a means to submit time and expense data from remote locations. Local project managers need to requisition goods and services, rebill local clients, and query or report on project information remotely.

Web front ends, data entry and query forms that can be used from desktop Internet browser software are already appearing for project management systems — especially for tasks such as time sheet entry or purchase requisitioning. Deltek Systems Inc., for example, is currently in beta with a Web-based time sheet entry applet called WebET, which transmits time sheet information across the Internet so that it can eventually be booked against a project (see Deltek's WebET). Deltek is also close to releasing a sophisticated workflow management module for use with its project modules and is working on adding multicurrency capabilities for managing multinational projects.

To assist with the analysis of project data, vendors are also combining on-line analytical processing (OLAP) software with their suites to increase the range of decision-support information that can be derived from the project data. Concepts Dynamic has an OLAP front end for its project system, called CDI Project Insight (see Concepts Dynamic's Project Insight) that provides managers the ability to use multidimensional cross-tabulations and charting to help visualize and analyze project information.

Integration of project data with the other accounting modules is the focus of Design Data Systems Corp. (see Design Data Systems Screen Show) recently released work order management module. This module ties together the project accounting modules with the order entry, distribution and customer service modules by allowing the project to be kicked off by an all-encompassing work order that could initiate issuing stock from inventory, purchase non-stock items, and allow the recording of time and expense data against the work order, among other tasks.

Like many other specialized financial accounting tasks, project management is gradually becoming a standard component of most accounting suites. If yours is a project-driven business, then the breadth and depth of the project management functionality of an accounting package must be the main criteria for comparing competing systems. This is a key differentiator that helps define whether the vendor is in the accounting or the project accounting business.