Project Cost Accounting

Project tracking ultimately leads to individual project cost accounting. And, this is a vital step in an integrator’s ability to maximize the profitability. It becomes impossible to run the business from macro-level – simply tracking overall receivables and payables versus the total labor cost. You must be able to account for your finances on a project-by-project basis.

Quoted versus Budgeted

The first step in the process is to understand that there is a difference between the quote for a project versus the budget for a projects. The quoted price is simply what you were able to sell the project for; the budget is what you have allotted to actually get the project done. In some cases that may be the same. But, in others, you may expect to complete project for less than the quoted price. Or, you may even expect it to take more (and therefore less profit). But, don’t make a habit of it.

Getting the Complete Picture

Next, ensure that your project accounting system includes all labor, not just developer time. Be sure to accounts for management costs, project support, customer engagements, sub-contracting, …. To get a complete picture, your project cost accounting system should include hardware and equipment utilization. For instance, you may be able to save labor by using better tools.

Eventually, some integrators will go so far as to include sales, marketing, and other overhead to the projects. At first this may be a simple percentage calculation, but eventually you may find that it is worth noting which projects require more upfront marketing and sales costs.

Don’t forget about non-billable projects. These may include internal projects or lost opportunities. For some, these are just tracked as ‘negative’ projects which the other projects must counter-balance. But others figure out ways to ‘charge’ their projects for use of these non-billable activities.

Project reviews and audits

Once you have your project cost accounting system in place, it becomes easier to incorporate into your project reviews. You can look at total project cost and profitability rather than just labor costs and schedules. Issues can be raised and addressed as they occur rather than at the end.

In addition, you can perform financial audits of your projects. Take a look at the real costs and where you are actually making money. You may be able to improve your budgeting process, and even identify customers that you may want to ‘fire’.

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2 Responses to Project Cost Accounting

  1. […] Project Cost Accounting – a vital step in an integrator’s ability to maximize the profitability. As your business grows, it becomes impossible to run the business from macro-level – simply tracking overall receivables and payables versus the total labor cost. You must be able to account for your finances on a project-by-project basis. […]

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