How Project Accounting Mitigates Risk for CFOs

When your business model consists of projects, financial accounting doesn’t reveal the full picture. By implementing project accounting, CFOs can gain insights that simply aren’t available with other methods.

The benefits of project accounting include improving profitability, allowing comparisons between projects, improved resource allocation, and more. In this post, we consider some of the business advantages of project accounting, as well as how this method mitigates risk.

Understand project finances day-to-day

With traditional accounting methods you get reports at intervals, which is helpful in reviewing a project in totality, but not at all helpful in understanding what is happening day-to-day. With project accounting, you can see daily expenses and revenues.

When you can see these numbers each day, you avoid surprises. Understanding day-to-day numbers reduces the risk of getting to the end of a project and finding that it wasn’t as profitable as expected—or worse, that it involved loss, rather than profit.

Real time updates

You don’t simply get a report at the end of each day; you get real time updates on how project progress and profitability. If one part of the project takes longer than expected, how does that affect profitability? With project accounting, you know.

Real-time updates lowers the risk of over-allocation and, again, of finding out too late that progress is slow or that profitability is declining.

Lower risk of project failure

When you can see a crisis coming, you have the opportunity to make changes. Because project accounting gives you a clearer view of how a project is going, as it’s happening, you can make better decisions about how to proceed.

In professional services businesses, especially, resources are valuable and getting them to the projects where they’re most needed and yield the most profit is crucial to the bottom line. With project accounting your “big picture” has more details, so that you can make better decisions.

Proper resource allocation means better overall project management. And better project management lowers the risk of project failure.

Improved billing data

All of this detail benefits your customers, too. Customers who have detailed and accurate data for billing are generally happier. You can also more accurately share progress data with your customers.

Happier customers are often more satisfied and more loyal. Accounting and customer service are more closely related than many people realize, but project accounting can really improve customer satisfaction.

Better bidding

When you can clearly see the differences between actual costs and estimated costs, as well as where they diverge, you have better tools for bidding on similar projects in the future. Understanding the scope of a project clearly is another element of improving the bidding process. Better bids lower risk.

Comparing projects

After you’ve used project accounting through several projects, you have a foundation of clear, accurate data, and you can begin to make comparisons. Analyzing projects can reveal what types of projects are the most profitable, as well as where you may need to make changes. You may also be able to see weak spots in your business model that would be obscured with other types of accounting.

Learn more

Understanding the benefits of project accounting is only the first step. How do you implement it? What kinds of training might your staff require in order to use it to the greatest advantage? Are there any drawbacks?

These are the kinds of questions we prefer to answer after getting to know you and your business better. Get in touch today and schedule a consultation. We’re happy to help you determine whether project accounting could lower your risk!