How can project accounting help you evaluate a project manager's performance?

Project accounting is a specialized branch of corporate accounting that tracks the financial aspects of projects, such as revenues, costs, profitability, and cash flows. Project accounting can help you evaluate a project manager's performance by providing relevant and timely information on how well they are managing the project's budget, scope, quality, and risks. In this article, you will learn how to use project accounting to measure and improve your project manager's performance.

1 What is project accounting?

Project accounting is the process of recording, analyzing, and reporting the financial transactions and results of a project. Project accounting differs from general accounting in that it focuses on the specific characteristics and objectives of each project, rather than the overall performance of the organization. Project accounting allows you to monitor and control the project's financial performance, as well as to allocate resources, track progress, and identify issues and opportunities.

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Dilip Harishkumar Berwani

CFO | Financial Controller | Head of Finance | Country Manager | Business Partner | Ex Vodafone
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Project accounting, aids in evaluating a project manager's performance through: -Budget Adherence: Monitoring how closely the project manager sticks to the allocated budget. If a software development project surpasses its budget due to oversight, it reflects on the manager's financial management skills. -Resource Efficiency: Assessing how effectively resources are managed. For instance, if a manufacturing project experiences delays due to inefficient resource allocation, it prompts a closer examination of the project manager's decisions. -Accurate Financial Reporting: Ensuring timely and accurate financial reporting, with delays or inaccuracies signaling potential issues in the project manager's oversight and reporting capabilities.

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2 Why is project accounting important for project manager evaluation?

Project accounting is essential for evaluating project manager performance, as it provides objective, quantifiable data on how they are meeting the project's goals and expectations. With project accounting, you can answer questions such as how much revenue the project is generating, the return on investment, how resources are being used, and how well the project manager is managing scope, quality, and risks. Furthermore, you can assess your project manager's accuracy and reliability in their forecasts and reports. By using project accounting, you can provide feedback, guidance, and recognition to your project manager.

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Dilip Harishkumar Berwani

CFO | Financial Controller | Head of Finance | Country Manager | Business Partner | Ex Vodafone
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Project accounting, vital for evaluating a project manager's performance, empowers financial controllers in three key ways. Firstly, it offers precise cost tracking, assessing the manager's ability to adhere to budgets. For instance, an IT project exceeding budget due to scope changes reflects on financial control. Secondly, it facilitates resource allocation evaluation; delays in a construction project due to poor planning prompt a review of the manager's decision-making. Thirdly, project accounting ensures accurate financial data, supporting informed decision-making. Timely reporting is crucial; any delays impact strategic decisions, reflecting on the manager's organizational skills and overall performance.

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3 How to set up project accounting for your projects?

To set up project accounting for your projects, you must begin by defining the project's scope, objectives, deliverables, and milestones. Additionally, establish the project's budget, revenue model, and profitability targets. Assign a unique project code and a chart of accounts for the project. Then, track and record all the project-related revenues and expenses, as well as any changes or adjustments. Finally, report and analyze the project's financial performance, variances, and trends. You can use various tools and software to facilitate project accounting, such as spreadsheets, accounting systems, or project management software.

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Dilip Harishkumar Berwani

CFO | Financial Controller | Head of Finance | Country Manager | Business Partner | Ex Vodafone
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To evaluate a project manager's performance using project accounting, we should set up a meticulous framework. Begin by collaboratively defining comprehensive budgets, incorporating all relevant costs—such as software licenses and unforeseen contingencies in a software development project. Implement real-time tracking systems, utilizing project management tools for data analysis, especially in cost-intensive projects like construction. Establish key performance indicators aligned with project goals, measuring success in metrics like cost variance and resource utilization rates. Regular reporting and analysis, along with training on accounting tools, ensure accurate financial data, fostering collaboration for effective project assessment.

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4 How to use project accounting to measure your project manager's performance?

In order to measure your project manager's performance using project accounting, you need to define and track some key performance indicators (KPIs). These might include project revenue, cost, profitability, margin, cash flow, budget variance, schedule variance, and quality variance. Comparing your project manager's performance against the project's targets, benchmarks, or best practices can help you identify areas for improvement or recognition. Additionally, the KPIs can be used to calculate the net amount of cash inflows and outflows related to the project. Overall, these metrics will provide insight into how well the project is being managed.

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5 How to use project accounting to improve your project manager's performance?

To use project accounting to improve your project manager's performance, you need to use the data and KPIs to provide regular and constructive feedback, coaching, and support. You should communicate the financial goals and expectations clearly and frequently, review the performance and KPIs regularly and collaboratively, celebrate the achievements, recognize the efforts and contributions, identify challenges and risks, provide guidance and resources to help the project manager overcome difficulties, encourage learning from successes and failures, and apply lessons to future projects. By doing so, you can enhance the financial outcomes as well as the project manager's skills, confidence, and motivation.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Tomi Akinwale ACCA, ACA, ACTI, B.TECH, FMVA, AAT.

Tax | Deloitte | Financial Reporting | Unlocking Your Career Potential
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Using metrics such as variance and profitability. Budget variance: Analyze the difference between the budgeted and actual project costs. A low variance indicates good cost control by the manager. Profitability: Track the project's profitability to assess the manager's effectiveness in managing resources and driving value

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How can project accounting help you evaluate a project manager's performance?

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1 What is project accounting?

2 Why is project accounting important for project manager evaluation?

3 How to set up project accounting for your projects?

4 How to use project accounting to measure your project manager's performance?

5 How to use project accounting to improve your project manager's performance?

6 Here’s what else to consider

Corporate Accounting

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