Increasingly,
many organisations are becoming project-centric in their activities. This is
certainly the case with organisations that are in the public sector and the
supply of capital equipment and infrastructure. However, there is a distinction
to be made amongst different types of projects, as different types of project
have different implications for finance managers:
In this environment, the
finance officer is part of a multi-disciplinary team. Normally, there will be a
major internal relationship to establish with the Project Management Office
which is the group of technical people that ensure that projects are meeting technicl milestones (names may differ between
organisations). In the case of the Olympics, there were
two intertaces - one with the finance team of the
project managers themselves, an external organisation called CLM, and another
with the ODA's Project Assurance Office (PAO). Since project management was
outsourced, the ODA's PMO became more of an audit function, hence PAO. In
addition, there are other teams that interface with finance, such as the
project managers themselves, procurement and ovten
since the line between the organisation and its suppliers can be fuzzy in these
circumstances, the supplier is almost a member of the
project team too.
The key task is to ensure
that the technical milestones of the project are meeting the financial
milestones:
To control this environment
properly, the organisation should use the project accounting module of the
accounts system. On sophisticated Enterprise Resource Programs (such as SAP and
Oracle), there will be a full project management suite available which the
organisation can use to its own discretion.
Under these circumstances it
is likely that the project will start in one financial year and complete in
another and it is important to get the reporting right under conditions of an
apparent dichotomy:
In resolving this dichotomy,
reporting has to reconcile commitment accounting vs
accruals accounting and project accounting vs annual
accounting. Both should be done!
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Small projects are a much more simple affair. Once again, a project costing module
needs to be used so that the actual cost of carrying out a project can be
identified. Typically, the costs of a project (large or small) are direct
materials and direct labour, but often bought-in labour is used in the form of
consultants specific to the project, or, for example, engineering resource.
As with large projects, the
cost and sales revenue of the project needs to be reconciled to the profit and
loss account. The difference between small projects and large is that it is
usually the case (but not always) that the dichotomy outlined above does not
have to be confronted.
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Revenue projects are a much
simpler exercise. By their nature, revenue projects will usually lie within a
financial year, so it is very rare that the whole-of-life project reporting of
large capital projects is necessary. In fact, these projects can be accounted
for using the normal cost centre analysis provided by the general ledger of an
accounting system. Revenue projects are prevailent in
the public sector and there are alternative devises in many systems that can be
used to trap project costs. For example, SAP has a concept called
"internal orders" where this was used to great effect at Oxfordshire County Council.
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