Project accounting
Project accounting is different from budgeting, although many of the concepts for making the numbers add up are similar. Budgeting is something you do at the beginning of the project (and as you reforecast at various intervals), and it tells you what you think you will spend. Accounting is the process you do as you go along that tells you what you actually are spending.
Once your project budget has been approved, which happens as part of moving the project from the ‘conceptual’ phase to the ‘delivery’ phases, you will be given the go ahead to spend the money required. Any expenditure needs to be tracked back to the project so the budget holder can keep an eye on what is being spent. The project might be allocated its own ‘pot’ of money, ring-fenced from other budgets, in which case you will probably have a cost centre code of your own.
Alternatively the project might be allocated a portion of the budget for a particular department. If this is the case ask your sponsor how they want you to identify project spending, and I’d recommend you use a project code so that it’s easy to spot which costs belong to your project. When you sign an invoice or raise a purchase order, use the code to ensure the expenditure can be tracked back to the project: make certain that anyone else who has the authority to use the budget does this as well.
Project accounting is working out how much you are spending as you go along throughout the lifecycle of the project. You could use techniques like Earned Value Analysis, or you could just keep to a very simple method of tracking spend on a spreadsheet.
Project Charging
Not all companies do charging. This is the process of moving wooden dollars around inside the company to charge other departments for work that you do. If you are a consultant or a contractor then you do this all the time: the accounting process tells you how much things are costing you, and the charging process is what you ask the client to pay. Charging internally is exactly the same. If you are using resources from another department there might be the requirement to pay for them – that department will charge you for their use.
The internal rates are likely to be set by the finance department or the portfolio office. As well as having to budget for this internal transfer of cost, you’ll also have to account for it as you go along, especially if you are not using the resource full-time. This is normally done through time sheets. Because charging for project resources is so common, project management software packages include timesheet features.
Before you ask everyone to do timesheets, you’ll want to check what your company’s rules are on cross-charging for business resources and also check with each department head about their expectations. For example, if they are loaning you a person, they may expect the project to fund a temporary resource to back-fill that person’s day job – and that might be ‘real’ money, not an internal paper charge.
Of the three components within project financial management, charging is optional. Budgeting and Accounting are things that should be done on all projects where there are costs incurred. However, it is down to your company to set a policy on whether or not internal resources will be charged for.
Next week, I’ll be looking at how to create a realistic budget.