Yes, there are a lot of approaches to managing your projects and track your profits. Some require more efforts than the other. But a lot don’t bother, and this results to financial losses or the worst consequence, shutdown.
Project accounting applies to several industries such as construction, customized products, software implementation, architectural and engineering firms; IT projects and more.
In this article, we share some methods on how to monitor your project profitability real-time.
- Start with your project budget. Some call it the bill of materials or cost sheet. But many people fail to consider the labor side and the overhead. Labor and overhead do not only apply to the manufacturing industry but also projects. Some other direct costs that can be charged to the project are transportation, commission, out-of-pocket expenses and manhour spent during the project.
- Account every project activities. Put project codes in every document from purchase orders, job order, sales orders, delivery receipts, etc. Using software that captures project codes will automate project profitability reports. Once you prepare any transaction, make sure to specify the project code for that transaction. Some software put a project tag in the chart of accounts so you can quickly call the project tag and the system will show all accounts tagged on that project.
- Implement a time accounting system. Regardless if you have a software for this or not, it is crucial that every employee, who has a role on a particular project, must prepare a summary of hours per month of what he or she has spent during the project. With this, the labor is appropriately and accurately accounted.
- Allocate overhead for each project. Every month or period, the accounting department should have a way or formula to spread the overhead costs such as electricity, rent, etc. across all project for that specific time.
- Make and analyze the budget vs. actual report. This report is the most critical part of project accounting. It is where you analyze variances and see where you can improve in the future, improve profit leaks for an optimized cost and a higher company bottom line.
In any case, depending on the company size, this entails a serious effort to implement and efforts to make the team realize its value to the company.
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