FSN: Accounting for project based organisations

Accounting for project based organisations

8th January 2007
The decline in manufacturing businesses and the growing importance of services based organisations to the developed economies of the West is beyond doubt. Yet traditional ERP applications originally designed around the needs of manufacturers continue to dominate the systems landscape. It means that for companies' whose biggest cost is human capital and whose stock in trade is ‘talent' rather than finished goods there is a surprising shortage of good accounting and business solutions.

It is a situation familiar to Ton Dobbe, of Agresso, an ERP vendor that focuses on services organisations, providing Professional Services Automation (PSA) solutions to the project oriented businesses that make up around 60 percent of its customer base. “Managing business in a people centric organisation is completely different from being a wholesaler. Its is a constant balancing act between resourcing short term and long term projects, getting the right people onto the right project and ensuring that as far as possible, all hours worked are billable hours.”

Professional services firms have to be very accountable for the hours that are worked. Rob Morton, consulting director at LogicaCMG, has responsibility for around 600 consulting staff in the UK , told FSN that the days of maximising the billable hours for its own sake have well and truly gone. “Clients know when an organisation is pumping up billable hours at their expense and get very annoyed. Many organisations know how to buy consulting resources and are looking for value for money. They want to be able to match the consulting cost against the benefits that they receive and this is something that we actively encourage.”

It means that the billing systems have to be flexible enough to report on time billed to date and work in progress by, say, project phase, deliverable or time period depending on a client's requirements. LogicaCMG, a longstanding user of Agresso Business World software, uses the full panoply of Agresso functionality to meet client challenges. “If you have 20 clients then there are at least 21 ways in which project information has to be supplied. At the beginning of a project we tend to give the client everything at the lowest level of detail, because they want to see that we are collecting and accruing information correctly. It is not unusual for there to be 14 pages of supporting schedules just to support a single invoice. However, after a time the client has confidence in our systems and just asks for the top page or two of summary information,” says Morton. Nevertheless, at the end of the project, LogicaCMG is happy to hand over a CD with all of the billing information in detail if required.

It is this kind of post-implementation agility that differentiates solutions like Agresso from the traditional ERP solutions which are notoriously difficult to change ‘on the fly'. “Organisations cannot afford to stand still and their systems have to change with them. Sometimes change is involuntary and imposed from the outside, like IFRS or a new European Directive. But this has to be done without engaging armies of consultants and IT resource,” adds Agresso's Dobbe.

But Professional Services Automation is not only about time recording and billing. Agile business systems have to be supported by an appropriate architecture that allows metadata, (structural information such as projects, cost centres and employee grading structures) to be shared across a set of tightly bound applications. Integration on this level means that individual project managers, project directors, employees, finance, payroll and HR personnel can all view the progress of the organisation from their perspective (role), safe in the knowledge that they are all on the same page.

Demonstrating value for money to the client and ensuring that major project deliverables are produced in line with budgeted costs are two sides of the same coin. “Before we commence working we make detailed budgets of the cost of producing each deliverable for the client and have to stick to it – particularly if we are working on a fixed price contract and are taking a commercial risk,” says Morton.

But getting all of the costs, especially expenses into the system is quite an undertaking. Ed Kiernan, a director at accounting and consulting firm Deloitte knows very well the challenges of pulling project costs together, particularly when the project team is spread over multiple sites at home and abroad. He told FSN, “Consultants enjoy professional work but generally do not relish the administrative tasks that go with it. When you have lots of consultants working around the world, building up expenses and time, it is vital that the underlying systems for data capture are easy to use so that the information is submitted quickly. But it also has to be accurate, for example, time costs and expenses must be posted to the correct phase of the project so that the client can see the appropriate costs coming through on bills.”

Keeping a tight reign on consulting effort is important to LogicaCMG's Morton as well. “The most common problem in managing consulting work is what we call ‘scope creep'. Consultants like helping and problem solving and they are sometimes tempted to help clients out with something not strictly related to the project in hand.” However, using billing systems, project managers can monitor progress against each phase and detect if a project phase is likely to exceed its budget and take the necessary action to bring it back on course.

Morton agrees that project administration is not always given the attention it deserves. One of the crucial performance indicators is the ‘burn rate', essentially the daily cost of deploying the team, which needs to be watched very closely. This is especially true if the staff mix on the project is different from the blend of staff in the budget because this affects the daily cost of providing the resources. An excess may not be recoverable from the client even though more senior (expensive) staff were deployed.

Deloitte's Kiernan also highlights the importance of the rate card – the agreed cost and selling price of consulting time. “International assignments have to cope with the complexity of exposure to currency exchange differences over long projects and the need to accommodate different pricing structures for consultants based in different countries,” he says.

But information also has to be monitored at a divisional level, looking across multiple projects to ensure that expensive resources are appropriately utilised, that work in progress is recoverable and does not remain unbilled for a long time and that bills are raised on a timely basis so that payment can be collected as planned.

Clearly, time recording and billing systems are much more than an administrative convenience. For people centric businesses they are a vital management tool that supports the company's and client's way of working, maximise productivity, timely billing and collection. But in today's more challenging and competitive environment a good time recording and billing system provides competitive edge, enabling forward looking consulting firms to demonstrate value for money whilst allowing clients to identify and appreciate the true value of the services they provide.

About Us