How to Improve Integration of Project Management and Accounting with Ease
For project managers working in the construction sector, the most important indicators of project success are scheduling and budget. A recent report published by McKinsey and company revealed that large building projects have an average schedule over-run of 20%, and that budget overruns occurred in 80% of these projects.
While adherence to a budget and timely delivery are two separate ways of evaluating project performance, they are actually closely connected. Many of the most common challenges that construction project managers face on the job site can have negative impacts on both scheduling and budget. When the wrong materials are delivered to the job site, not only is the schedule compromised, but on-site contractors and employees must still be paid. When a gap in planning or communication leads to rework, the result is both scheduling delays and wasted materials.
To mitigate these issues, an increasing number of project managers are choosing to implement integrated accounting systems alongside their chosen project management software tools. Integrated accounting can have a positive influence on every stage of the construction project management process and ultimately gives managers improved oversight of project scheduling and budgetary performance.
What is Integrated Accounting?
Integrated accounting is changing the way that project delivery teams in construction communicate with each other, share data and make real-time decisions that drive project success.
A construction project team consists of many roles: a construction project manager, a project accountant, the general contractor, architects, engineers, designers, the project owner and often additional stakeholders. In the past, communication between all of these parties was conducted with limited use of technology, which could frequently lead to lost information and costly delays.
Take the example of a single change order. The project owner might visit the job site one day and request a change. A site manager might help the project owner fill out the change request and bring it to the project manager’s office for approval. Once the change is approved and schedule, the order would be sent through to the back office accounting department where the project budget could be updated.
This manual process includes multiple hand-offs with many opportunities for manual data entry error or lost paperwork. More importantly, however, this process results in a significant time delay between when the change order is initially requested and when the project budget documents are updated to reflect the new change. This might not be a big deal on a small project, but on larger projects with frequent changes and a continuous flow of new items into the accounting office, the end result is that project managers have to wait days for an up-to-date version of the project budget.
Integrated accounting addresses this issue by synchronizing foundational, budgetary and transactional data between the back office and the field. Information such as new purchase orders or change orders that are uploaded to a project management platform will be automatically exported to the chosen accounting software and immediately reflected in the budget documents for the project. This process eliminates manual data entry of paper-based records into the accounting system, saving time and eliminating the possibility for error. With integrated accounting, project budgets are updated in real-time and construction project managers can make business decisions based on the most accurate and up-to-date data that reflects the status of the project.
How Does Project Management and Accounting Integration Support Project Outcomes?
One of the key functions of integrated accounting solutions for the construction industry can be described as “connecting the back office to the field.” Streamlining communications in this way helps to maintain a near-real-time flow of information between the job site, the back office, and the construction project manager. All key stakeholders have increased visibility into “actual” against “budgeted” labor, costs and materials data throughout the project lifecycle.
Project managers want the activities that take place on the job site to be reflected in project and budgetary documentation as quickly as possible. This ensures that project managers have access to the most current information necessary to manage their project scheduling and budgetary mandates. While project management software on its own is effective at streamlining communications, the addition of integrated accounting functionality helps to support the flow of budgetary data throughout the organization.
As construction project managers advance a project through its life cycle, accounting integration plays different roles in supporting project outcomes.
Integrated Accounting in the Pre-Construction Phase
The pre-construction phase begins when the project owner selects a project delivery method and ends when the physical construction begins. In this stage, project managers are focused on establishing a project management plan that defines how the project will be completed. This includes identifying material suppliers, selecting the correct labor team, preparing budgets and cost estimates and other activities.
In the pre-construction phase, integrated accounting makes it easier for project managers to construct cost estimates based on historical estimate data that are frequently housed in an Enterprise Resource Planning (ERP) tool. This data can also be housed in previous project files retained in a virtual project folder. Project managers can also create and model hypothetical budgets with defined parameters and get real-time feedback on their performance as they begin to contract suppliers and assign labor for the project.
Integrated Accounting in the Construction Phase
The construction phase consumes the majority of the scheduled time and budgetary resources for a given project. During this phase, project managers focus heavily on day-to-day progress management on the construction site, along with additional planning tasks and risk management to prevent delays.
In the construction phase, integrated accounting is used to simplify the processing of change orders and purchase orders, reduce manual labor and data entry in the accounting department and ensure accuracy in project billing and invoicing. With integrated accounting, project managers have consistent access to the most current budgetary data that can be used to inform business decision-making.
Integrated Accounting in the Post-Construction Phase
Once construction has been completed, project managers must do the administrative work of closing the project and handing over the finished work to the project owner. This phase includes the creation of reports that describe the scheduling and budgetary performance of the project.
With integrated accounting, project managers can quickly produce reports on the budgetary performance of a project following its conclusion, as the required documentation has been added to the accounting system and updated throughout the project.
Maintaining communication and synchronizing data between the field and the back office is one of the major challenges that project managers face in the construction industry vertical. Integrated accounting software solutions are making it easier for project managers to streamline communication between stakeholders, gain access to real-time costing information, and make the best decisions possible to complete projects on time and on budget.