Project accounting problems in construction and the tech to solve them

Sustainable and profitable construction companies depend on good accounting. But it’s not always easy. Unlike other sectors with set pricing and regular services, construction projects often involve unique contracts and diverse services like consulting and engineering. Then there’s those tricky estimations, unexpected costs and changes in project scope that all require careful management to get right. It's essential for construction firms to get ahead of these all-too common challenges, avoid mistakes, and invest in systems that support their accounting teams' efforts. 

Let’s look at those risks in more detail and see how integrated cloud ERPs can help construction companies run a more stable, successful business. 

Or learn how to plan, measure and monitor project profitability with NetSuite >

Lack of integration between projects and financials 

If project management and financial systems are separate, both project managers and finance teams will suffer. This fragmentation makes for inefficient data retrieval, analysis, and less informed decision-making. For example, without integration the process of reconciling project expenses with financial records is manual and error-prone, and can make it hard to accurately assess project profitability and financial performance. Meanwhile limited visibility into project budgets, expenses, and financial forecasts will cause project managers to struggle to access real-time financial data and finance teams won’t be able to adequately track project costs and allocations. 

On the other hand, unified systems benefit both finance and project teams: 

Improved efficiency and accuracy | Automation of data transfer and synchronisation between project and financial modules reduces manual errors and enhances data accuracy.  

Streamlined processes | Integration of project management and financial modules in a cloud ERP platform streamlines processes by centralizing data and workflows. Project managers can track project expenses in real-time, while finance teams have access to accurate project data for budgeting and forecasting. 

Profitable decision-making | Integrated systems provide comprehensive insights into project performance and financial health. Project managers can make decisions based on real-time financial data, while finance teams can better forecast cash flow and allocate resources. 

Real-time budget tracking | With seamless integration, project managers can monitor project expenses against budget allocations in real-time. Any deviations are immediately flagged, allowing for proactive cost management and decision-making. 

Automated expense approval workflows | Integration enables automated expense approval workflows, where project expenses are directly linked to financial records creating a tidier approval process and ensuring compliance with budgetary constraints. 

Inaccurate estimating and job costing 

Construction estimation involves forecasting all expenses associated with a project. Which means you must anticipate quantities and costs of materials, while factoring in labour, travel, tax, and other miscellaneous expenses. Precision here is key because inaccuracies can quickly add up and lead to lost tenders, costly errors and even project derailment. 

Traditional project estimation methods often rely on historical data, manual calculations, and subjective judgment. If you lack access to real-time data, you will have to rely on outdated information. Or if your data isn’t consolidated you will have to spend significant time and effort to bring it all together. Unwieldy, unreliable data forces estimations to instead be based on subjective judgment or past experiences which introduces biases and inconsistencies that may lead to overestimation or underestimation of project costs. And if there changes in project scope, market conditions, or other unforeseen circumstances, it’s difficult to adapt and revise estimates. 

Underestimating project costs can lead to budget overruns and eroded profitability. Later down the line, budget constraints may force contractors to cut corners or compromise on quality to meet cost targets. And of course, projects plagued by cost overruns and delays can tarnish the reputation of construction firms, leading to loss of client trust and future business opportunities. 

Cloud ERP systems offer a modern solution to address these challenges: 

Real-time data tracking | Cloud ERP systems enable real-time tracking of project data, including costs, resources, and progress to that estimates can be based on the latest most accurate information. 

Project management integration | Many cloud ERP systems can natively integrate with project management tools to support a unified platform for estimating, planning, and execution. This allows for better coordination between project teams and finance departments and far more accuracy in cost projections. 

Advanced analytics | You can ditch spreadsheets with advanced analytics tools natively integrated with your cloud ERP platform. With your data consolidated, you can consider every factor that may influence project costs, accessing historical data, tracking market trends, and analysing project-specific variables. 

Scalability and flexibility | Cloud ERP systems offer scalability and flexibility to accommodate changes in project scope or requirements. Timely adjustments can be made to estimates, ensuring that they remain accurate throughout the project lifecycle. 

Detailed actual vs budget reporting 

Deviations from budget are inevitable in construction, but when they happen you need to know why they occurred and their impact. Because it is only by regularly analysing these deviations that you will get valuable insights for future planning. Enter the budget vs actual report – aka a cost performance report - a fundamental document for monitoring and evaluating project costs, and timely course correction. 

Cloud ERP solutions such as NetSuite offer comprehensive reporting tools that take the pain away from comparing actual project expenses against budgeted costs in real-time. These tools provide a holistic view of project finances, facilitating better cost control and resource management.  

In fact, cloud ERPs like NetSuite allow a while range of metrics related to project profitability to be effectively managed and analysed: 

Gross profit margin | Track project costs and revenues to calculate gross profit margins for individual projects or across the entire portfolio.  

Net profit margin | Integrated project and finance data allows the calculation of net profit margins, considering all project-related expenses, including overhead costs and indirect expenses. 

Cost variance and schedule variance | Track project budgets and schedules in real-time. Users can compare actual project expenses and timelines against the budgeted costs and schedules, allowing for the identification of cost variances and schedule variances. 

Return on investment (ROI) | Compare project revenues against costs, analyse project performance and assess the return on investment for each project.  

Cash flow | Manage cash flow, such as cash flow forecasting and budgeting tools. By tracking project expenses and revenues in real-time, users can effectively manage cash flow and ensure sufficient liquidity to support ongoing projects. 

Time tracking against jobs 

If your construction firm has been using a manual time-tracking system, this cloud ERP feature will be a welcome new change to the errors, disputes, financial implications and delayed insights associated with manual methods. 

Automated time tracking capabilities ensure precise recording of time spent on tasks, provide real-time insights into resource utilisation and free employees to focus less on admin and more on project tasks. 

Optimised resource allocation | When time tracking is integrated, project managers can allocate resources based on real-time data, ensuring optimal utilisation of workforce. 

Identification of bottlenecks | By correlating time tracking data with project milestones, managers can identify bottlenecks and address them promptly, preventing delays and cost overruns. 

Streamlined processes | Seamless integration between time tracking and project management streamlines administrative processes to reduce manual effort. 

Purchase and expense logging against projects 

Tracking project-related purchases and expenses across multiple vendors and transactions is complex. Projects often involve multiple vendors supplying various goods and services, making it challenging to allocate and consolidate expenses. High transaction volumes further complicate expense tracking, leading to potential errors and inefficiencies. 

Cloud ERP solutions streamline procurement processes and enhance expense logging against specific projects: 

Centralised data | Centralise procurement data, providing a single source of truth for all project-related expenses. 

Automated workflows | Automated procurement workflows streamline purchasing processes, from requisition to payment. 

Expense allocation | Integrated project management modules enable seamless expense allocation to specific projects, ensuring accuracy cost tracking. 

In accounting, teams face a number of challenges - many of which are unique to the construction industry. Fortunately, the right cloud ERP can help you address these challenges and benefit from a range of best practices such as job costing, time tracking, reporting, automation and the efficient use of technology. 

More valuable resources:

NetSuite case study: How ATOM’s revenue grew over 72% in just three years  

Discover how terminal management firm ATOM fuelled their growth aspirations with Annexa’s best-in-class NetSuite cloud ERP integration and implementation approach.