The Hidden Costs of Manual Project Accounting in Complex Project-Based Manufacturing

In project-based manufacturing industries, such as Aerospace & Defense, Medical Devices, Industrial Machinery, and Capital Equipment, projects are often long-term, complex endeavors requiring meticulous cost management, and the backbone to success lies in efficient, rigorous project accounting practices.

While there have been significant advancements in project management tools, traditional accounting systems often struggle to keep pace. The disparate nature of these systems, relying on a mix of ERP, spreadsheets, and manual processes, creates significant challenges; Inaccurate cost tracking, difficulty managing long-term project budgets, and limited real-time financial insights hinder project profitability and decision-making.?

Understanding these challenges and their impacts is crucial for any business aiming to stay competitive. In this blog post, we will explore the intricacies of fragmented and manual project accounting, the specific challenges it poses to complex project-based manufacturing businesses, and how solutions like Epicor Advanced Project Accounting (APA) for Kinetic can transform these processes.

"Projects have become the dominant format for work in contemporary organizations."

The Challenges of Fragmented and Manual Project Accounting

• Time-Consuming Processes; Fragmented project accounting is inherently slow. It involves tedious data entry, reconciliations, and verifications across various tools and systems, such as ERPs, spreadsheets, and manual data imports. For project-based manufacturers managing multiple, intricate projects simultaneously, the time spent on these tasks can be monumental. This inefficiency not only delays financial reporting but also hinders decision-making processes.?
• Increased Risk of Errors; Humans are prone to errors, especially when dealing with repetitive tasks and large volumes of data spread across disparate systems. In project accounting, even minor mistakes can lead to significant discrepancies in financial reports, misallocated resources, and flawed business decisions. These errors are often not discovered until it is too late, making them costly to rectify.?
• Limited Financial Visibility; When data is scattered across multiple systems, it becomes challenging to get a holistic, real-time view of project finances. This lack of visibility makes it difficult for project managers to track budget vs. actual costs, forecast cash flows accurately, and identify financial issues early. The resulting opacity can lead to unexpected overruns and a reactive, rather than proactive, approach to financial management.??
• Compliance and Reporting Challenges; Adhering to accounting standards such as IFRS-15 and ASC-606 needs meticulous record-keeping and precise revenue recognition processes. When data is manually integrated from various sources, ensuring compliance becomes a daunting task, increasing the risk of regulatory fines and damaging the company’s reputation.?
• Inefficient Resource Allocation; Without a centralized system, resource allocation is often based on incomplete or outdated information. This can lead to underutilization or overburdening of resources, disrupting project schedules, and increasing operational costs.?

“Before [APA], I would open up my Excel spreadsheet and type in data such as the invoice number, the vendor, the project number, the phase ID, the cost code, the dollar amount, etc. Then I would have to go into Epicor and manually transfer all of that information. It took a lot of time.”

The Impact on Complex Project-Based Manufacturing

• Delayed Project Delivery; Inefficient and fragmented project accounting practices can delay the availability of crucial financial data, leading to delays in project delivery. For businesses involved in long-term, complex projects, these delays can cascade, affecting not only current projects but also future ones.?
• Cost Overruns; Lack of real-time financial tracking can result in cost overruns. When project managers cannot see the immediate financial impact of their decisions, they may inadvertently exceed budgets, leading to reduced project margins and financial strain on the organization.?
• Strategic Decision-Making Impairment; Accurate, timely data is the bedrock of strategic decision-making. Fragmented and manual accounting systems often fail to provide the necessary insights promptly, impairing the ability of senior management to make informed decisions. This can hinder the company’s ability to respond to market changes, optimize operations, and drive growth.??
• Customer Satisfaction Issues; Projects that run over budget or behind schedule can significantly affect customer satisfaction. In a competitive market, the inability to meet client expectations can result in lost business and a tarnished reputation.?
• Operational Inefficiencies; Fragmented project accounting can create operational inefficiencies that permeate the entire organization. From project planning and execution to reporting and compliance, every phase of the project lifecycle is affected, reducing overall productivity and profitability.?

How Automation Addresses These Challenges

Next-generation project accounting automation solutions, such as Advanced Project Accounting (APA) for Kinetic, are designed to tackle these challenges head-on, providing deep, end-to-end capabilities that enhance efficiency, accuracy, and visibility in project-based manufacturing businesses.?

• Centralized Data Management; APA combines data from various systems into a single, unified platform. This eliminates the need for manual data imports and disparate tools, offering a cohesive view of all project financials in real time.??
• Automation of Routine Tasks; APA automates many routine accounting tasks, significantly reducing the time required for data entry, reconciliations, and financial reporting. By eliminating manual processes, businesses can streamline their operations, ensuring that financial data is accurate and up to date.?
• Enhanced Accuracy and Error Reduction; Automation minimizes human error, ensuring that financial records are precise and dependable. APA’s advanced algorithms and validation checks catch discrepancies early, allowing for quick corrections and preventing errors from cascading through the financial system.?
• Real-Time Financial Insights; APA provides real-time visibility into project finances, offering granular insights into budget vs. actual costs, cash flow forecasts, and financial performance. Project managers can access up-to-the-minute data, enabling them to make informed decisions quickly and efficiently.?
• Compliance and Reporting; APA supports compliance with major accounting standards such as IFRS-15 and ASC-606. It automates revenue recognition processes, ensuring that financial reports are accurate and compliant. This reduces the risk of regulatory fines and enhances the company’s credibility.?

The Benefits for Project-Based Manufacturers

• Timely Project Delivery; By streamlining financial processes and providing real-time insights, APA helps ensure that projects are delivered on time. This enhances customer satisfaction and strengthens the company’s reputation in the market.?
• Cost Control and Margin Improvement; APA’s real-time financial tracking enables better cost control, preventing overruns and protecting project margins. Businesses can manage their finances proactively, ensuring that projects remain profitable.?
• Strategic Decision-Making; With accurate, real-time data, senior management can make informed strategic decisions. APA’s comprehensive financial insights support long-term planning, market responsiveness, and operational optimization.?
• Enhanced Customer Satisfaction; By delivering projects on time and within budget, businesses can meet and exceed customer expectations. APA’s efficiency and accuracy contribute to higher customer satisfaction and loyalty.?
• Improved Operational Efficiency; APA enhances operational efficiency across the project lifecycle, from planning and execution to reporting and compliance. This boosts productivity, reduces costs, and drives overall business performance.?

“Last year was our busiest year ever. Consolidating project management processes with Epicor [APA], as well as cutting out manual data entry and data chasing, has supported that growth.”

Key Takeaways

Fragmented and manual project accounting poses significant challenges for complex project-based manufacturing industries. The inefficiencies, errors, and lack of visibility inherent in these processes can lead to delayed project delivery, cost overruns, and impaired decision-making.?

Epicor Advanced Project Accounting (APA) for Kinetic offers a comprehensive solution to these challenges. By centralizing data, automating tasks, and providing real-time insights, APA empowers businesses in Aerospace & Defense, Medical Devices, and other complex sectors to achieve greater project success, profitability, and customer satisfaction.?

Ready to Transform Your Project Accounting? Contact us today to learn how Advanced Project Accounting for Kinetic can help.