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Project Accounting Software Guide
Useful information on Project Accounting Software, including:
What is Project Accounting Software
Project accounting software helps companies track and manage customer-focused or internal projects, providing information about project profitability, revenue and expenses by project, and project-related tasks, resources, timelines, and much more.
Project-based organizations frequently use project accounting software as their primary or only accounting software, so that one system handles all aspects of their accounting needs. This type of specialized project accounting software can be used by project-centric organization such as professional service firms, outsourcing firms, IT shops, engineering firms or job shops.
There are also software packages that are more generic or broad but contain a project accounting component, for companies that need to manage internal or customer-focused projects but also have other needs such as manufacturing, distribution, service, or development.
Project Accounting Software vs Project Management Software
Project Management Software tracks and manages the tasks, resources, timelines, milestones and other activities of projects .
Project Accounting Software tracks and manages the costs and revenues associated with projects.
However, there is often significant overlap. Many project management packages include at least some level of project cost accounting, and many project accounting software packages have some project management functionality.
Is Project Accounting Software Right for You?
Just because you need to track costs or profitability by project, does not necessarily mean you need project accounting software. Conversely, even if you are not a project based organization, project accounting software may be beneficial for you.
Here are some key factors to determine if project accounting software is right for you:
- How many projects do you have per year, and how long do they last? If you only have a few, and/or your project tend be long in duration, you may do just fine by simply using a separate General Ledger account or segment for each project. However, if you have many projects, especially many short projects, your GL will quickly become overrun with project codes and unmanageable.
- Do you need WIP or revenue recognition information more frequently than once a year? If so, software that automates the calculation of WIP and revenue/cost recognition based on milestones and/or activities may save you a very significant amount of time and effort.
- Do you need to track labor costs by project or job? A core feature of all project accounting software is the ability to allocate labor hours and costs by project. In the absence of this functionality, trying to allocate labor costs manually after the fact can be hugely time consuming and inefficient. Good time and billing software will save you significantly in allocating and billing for labor costs.
- Do you need to track costs and/or revenues by activity? Many organizations don't think of themselves as "project" based, but still need to track costs and/or revenues by something -- perhaps you need to track costs by grant code, or by marketing campaign, or by job. Project accounting can be just as useful for internal projects as for customer based projects, especially the project accounting modules that are part of larger ERP or MRP systems.
There are many other features and functions of project accounting software, but these issues are frequently deciding factors in one direction or the other.
How to Evaluate Project Accounting Software
The most important basis for evaluating project accounting software is how well it meets your organizations' requirements.
But project-based organizations frequently have certain common needs that may be somewhat different from other companies. These requirements typically center on the need to track costs and possibly revenue against projects, subprojects and tasks, the need to charge employee time against projects, and the need to report profit and loss by project. It may also include the need for progress billing, time- or milestone-based revenue recognition, and/or Work in Progress (WIP) accounting. So to evaluate accounting software to be used in a project-centric organization, you'll want keep in mind all the general business and accounting requirements, as well as the specific project management and project accounting features.
Some key accounting software features to consider:
- What modules or functions are available (ie, General Ledger, Accounts Payable, Accounts Receivable, Cash Management, etc)
- User interface design (especially ease of use and customizability)
- Reporting (pre-built reports that are available, report wizard, ability to create your own reports)
- Ability to migrate your historical data (this is frequently much more complex and error-prone than it sounds)
Some Project Accounting Specific features:
- WIP accounting - if you use WIP, do you need a specific WIP feature or can you just as easily do it manually; what kind of WIP do you use, how many options do you need, will you benefit from tracking WIP by project by day/week/month, or does once a year suffice?
- Time Entry - will your employees enter time against projects directly? Are they all in the office, or do they travel? Web time entry and/or entry from handhelds may be important.
- Revenue recognition and invoicing - what types of revenue recognition do you use? Do you need the software to automate invoicing based on hours or milestones?
- Project management - will you use this software for your project management as well? Or do you have other project management software (such as ms project or primavera) that you want to integrate with? Or is this not a concern? If you intend to use the project accounting software for project management as well, you'll need to evaluate the project management features as separate from the accounting features, and also look at the integration - is it fully integrated / automated or is action required?
The more features your project accounting software has, the more expensive it is likely to be, so be sure to differentiate between "needs" and "wants" when organizing your requirements. However, integrated software and the automation of previously manual processes can be a very significant cost saver over the long term, as well as providing significant additional business insight, so you should seriously consider as much automation and depth of useful features as you can afford.
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