How to choose the right cost accounting software?

Cost accounting, often referred to as management accounting, is the branch of accounting that provides economic and financial information about project costs to aid management to plan and control projects and other business activities. In order to practice cost accounting effectively, a project controls software package should assist the user in costing, evaluating and forecasting, while minimizing the required effort. However, how do you choose the right cost accounting software that is up to this task?

Factors to consider when selecting a cost accounting software

1. User interface

The starting point. Look for a package that has quick out-of-the box usability. To what extent is the software able to receive and process data with minimal user effort? Is the user prevented against making easy mistakes that decrease the confidence in the presented figures? If users cannot feel comfortable and safe using the new software package, you will not be able to get the wide support you need for a successful roll-out. In the digital age we live in, even the most advanced features should be easy to work with.

2. Budget and budgetary controls

The budget is the formally approved plan for a future project or service, expressed in cost elements. Managers use the budget to aid in planning and controlling the project or operation. Cost accounting software should provide the means to structure the budget using cost objects that allow you to break down the scope in controllable parts.

3. Processing commitments and actuals

As commitments and actuals come in, it can be a large effort to getting this information in the cost report. We are talking about potentially large amounts of data that, more often than not, arrive on the last moment just before your report is due. All this needs to be handled consistently and efficiently. You want to minimize the amount of time spent importing data and maximize the time you can spend on actual analysis and forecasting.

4. Change management

During the lifecycle of a project, it is very likely that the design or requirements evolve as the project matures. The cost report must reflect these changes, but first, you need to estimate their impact. How does the cost accounting software let you use cost data and estimating techniques to cost these changes?

Additionally, how does the cost accounting software manage changes? You should be able to trace a change and allocate it to the relevant budget items. Can you browse through all changes, study their impact, and analyze the variations they cause?

5. Scheduling and cash flow analysis

A cost report is a live document. As the project progresses, the budget is updated, commitments and expenditures are recorded and there might be adjustments to the planned schedule. A proper cost accounting system should be able to view a resource-loaded schedule to study costs and expenditures as they occur over time graphically (think S-curves). It is important to break down this graph to zoom in or filter out parts of the project.

6. Progress and earned value

Viewing the cash flow is one thing, but this does not tell you the complete story about the state of the project. What has actually been constructed or delivered compared to the plan? In other words, how much of the planned work have we actually carried out and how far do we still need to go? The cost accounting software should be able to facilitate multiple ways of describing the earned value. For example, in terms of milestones, percentage complete or installed quantities.

7. Trend analysis and forecasting

Using all information above, the project is to be controlled to assure the business case is secure. To this end, see what tools are at your disposal. In what way does the software allow you to bring in expert opinion, incorporate trends and forecast the costs?

8. KPIs and reporting

The current and forecasted performance of the project needs to be communicated to management. A great help to quickly identify and report the project’s performance is the use of Key Performance Indicators (KPIs).

To what extent does the software allow you to define your own KPIs? When communicating the status of the project, a reporting format should exist to explain important information to the involved parties in an easy way. This should include at least S-curve graphs to review the actual vs. planned values, KPIs, and cost summaries, but possibly also more advanced concepts.

9. Data management and security

When running multiple projects, and having many people working on cost accounting, it is important to have a database structure to keep all files in an easy-accessible place that is secured from access by unauthorized users. Ideally, this is also where cost estimating and benchmarking data reside, so that project actuals can be used to improve estimating data and future project predictions.

10. Integration with ERP tools

Proper cost accounting requires information about the most up-to-date schedule, commitments, actuals, progress, etc. This information often resides in other business software. By interfacing with these systems, the data should be quickly obtainable and managed by the cost accounting software to minimize user interaction. To what extent is this supported and can it be customized?

Many solutions exist, but only a few deliver all of the above. Conduct a careful study upfront and determine through a proof of concept if the software is really up to the task.