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. How do you choose the right software that is up to this task?
The following cost accounting concepts should be considered:
1. User interface
The starting point. Look for a package that has quick out-of-the box usability. To what extend 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. This information needs to be reflected by the cost report, but first their impact needs to be estimated. To what extend allows the software you to make use of cost data and estimating techniques to cost changes? Then, how are changes managed within the software. A change should be traceable and allocated to the relevant budget items. Are you able to browse through all changes and study their impact and 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 software package 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 be able 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 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 you have 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 extend allows the software you to define your own? When communicating the status of the project, a reporting format should exist to explain the involved parties in easy way important information. 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 exists, 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 being able to interface with these, this data should be quickly obtainable and managed by the cost accounting software to minimize user interaction. To what extend is this supported and can it be customized?
Many solutions exist, but only few deliver all of the above. Do a careful study up front and determine through a proof of concept study if the software is really up to the task.
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