One of the biggest stumbling blocks that project-based companies encounter when implementing an enterprise resource planning system (ERP) is that most accounting software isn’t built for project work, and most project management systems lack robust accounting tools, making it difficult to determine the profitability of projects. It’s not surprising that many companies can’t really tell you which of their projects were the most profitable off the top of their heads; to figure it out would take a tremendous amount of time and effort exporting and correlating data between disparate systems.
That’s because most ERP systems are designed to book revenue/costs against an accounting code, so costs and revenue may not be accurately allocated to individual projects and even if they are, information becomes siloed with no easy way to analyze or compare to other projects. What happens when you have expenses that touch more than one project and how do you handle overhead charges that need to be distributed over a group of projects? If these types transactions are recorded in general accounts or misallocated it will reduce the accuracy of any profitability reports.
ERP systems designed specifically for project-based companies, like Microsoft Dynamics SL, can help by allowing businesses to book revenue and allocate costs at the project level. The Project Allocator feature of Dynamics SL allows you to gain precise control over project finances by creating flexible, multi-tiered hierarchies to reflect labor rates and billing structures. You can automatically allocate charges and revenues, account for work-in-process, transfer or consolidate transactions, and record accurate data for billing and posting to general ledger accounts.
Having these tools allows you to understand your project profit margins and determine which are worth trying to duplicate. Conversely, project profitability reports can help you understand which types of projects are not worthwhile – or things you may want to avoid or that would need to be better evaluated in the future in terms of budget.
Download the Microsoft Dynamics SL 2015 Functionality and Product Capabilities brochure to learn about the other features your project-based business could benefit from. And contact Accountnet if you would like to discuss your specific needs. We have helped hundreds of government contractors, advertising agencies, and management consulting firms deploy project-centric ERP systems.
Written by DynamicsNewYork