Why an Accounting Method Will Change the Way You Work

Do you understand how profitable your current consulting projects are? Do you know which employees perform best when they're meeting with clients, and which excel at research? Can you pinpoint the reasons why a certain project was so much more successful than another? If you have a general idea of these answers but lack the hard data, it's time to look towards project accounting.

Given how helpful it is, project accounting hasn't been given enough attention. As a starting definition, it's the practice of accounting for individual projects. Simple enough, but this idea might not fully encompass how transformative it can be.

Project Accounting Versus Standard Accounting

Project accounting is all about the details. While standard financial accounting is essential for the health of any business, project accounting helps drive the success of individual projects.

It's standard for a firm to review their financials on a monthly or quarterly basis, but your projects may be over in less time than that. Consequently, you need to measure profits and losses, utilization, margins, earned value, and more on a much more frequent basis. Instead of identifying problems and successes after the fact, project accounting allows you to examine everything in real-time. This shorter time frame allows you to have much more control over smaller decisions—which are often the ones with the biggest outcomes.

Moreover, project accounting requires that employees that are lower down on the organization chart get involved in the decision-making process. Your senior associates and managers need to monitor everything. Even if your firm is too small to have a real hierarchical organization, everyone must be in the loop. If you're a solo practitioner, project accounting necessitates that you look at your projects from diverse angles to determine their success.

Benefits of Project Accounting

Pages and pages can be written about the benefits of project accounting, but for now, here's a quick overview of the main reasons why you should think about adopting it in addition to your standard accounting procedures.

1. You'll get the data you need to increase efficiency and profits. This is the guiding rationale behind project accounting, after all. With better information comes better decisions. If you know you're eroding your margins when you're only 25 percent done with an project, for example, you'll know to make changes to the way things are being done. There are so many more insights you can get, from who your highest-performing employees are to which types of projects your firm should focus on.
2. You'll empower your staff. When your staff needs to manage the day-to-day financials and key performance indicators for their projects, they become responsible for profitability. In essence, each manager or senior associate becomes the CEO of his or her project. Most people are excited to have these reins in their hands and consider it a sign of trust. Moreover, now that their performance will be more closely tied to project performance, you'll likely see an uptick in both.
3. You'll cultivate collaboration. Generally speaking, when information and people stay stuck in silos, the results aren't great. When there's greater visibility and everyone is invested, you'll increase performance on individual projects and get everyone to contribute to the larger strategy of your firm. Rather than this being a “too many cooks in the kitchen” scenario, lower level employees will understand why certain decisions are being made and what they can do to help. If, for example, everyone knows that an project will be a net loss but an important stepping stone for your firm's reputation and relationships, it's straightforward to get the whole team on board.

Project accounting is certainly appealing in terms of its benefits, but it may also seem daunting to you. Involving more stakeholders and more data analysis doesn't sound simple, and if you're a solo practitioner or a member of a small consulting firm, you might not think you have the time to undertake this.

However, with the right project accounting software, it's surprisingly easy. Look for software that unifies all the pieces of data you need, like invoicing, time and expense entries, accounting, project management, and business intelligence. Your goal should be to equip yourself with the right tools, so you can spend your time growing your business.