Beware of Data Overload: A practical approach to job costing & revenue recognition

Many businesses don’t the difference between ‘need to know’ and ‘nice to know’ when it comes to gathering data for job costing and revenue recognition, according to Trish Hall, CEO of Melbourne-based Greentree Partner Star Business Solutions.

If your business is project-based, it’s driven by accurate data. But too often, businesses run the risk of slowing themselves down – and costing themselves money – by wanting to know too much. Someone has to gather that information, and everyone involved in a project has to supply it.

Timesheets that require excessive amounts of detail – and consequently take longer to fill out – may either be ignored by staff until someone starts chasing them, or may be given the bare minimum of attention and possibly end up lacking the very information you require to keep an accurate track of job costs.

Accountants and project managers can end up at loggerheads if each wants a different set of data. For example, accountants will want to ensure that invoices going out to the customers have the detail required to get them paid, work in progress is correctly accounted for and revenue recognition calculations can be done easily. On the other hand, the project managers want to know how much has been spent doing particular activities on a project (or across multiple projects), and how this can be applied to ongoing new projects or prospective projects. They will also want to be able to provide relevant information to their customers and analyse actual versus budget.

When preparing for a project, cost factors that must be considered include preliminary estimate and design work, travel and communications, committed costs (those for which invoices have not yet been received), third-party costs (e.g.: sub-contractors), and equipment.

Revenue should be counted only when it’s been earned, rather than when the invoice has been sent.

Consistency is the key to calculating revenue accurately. Whether you’re calculating on duration (percent complete) or work done (percent work complete), be sure you apply this uniformly. Project managers need to have information at their fingertips in order to determine percent complete, and to make adjustments as determined by circumstances.

“It is very easy for a project to ‘run away’ in terms of the costs and these to suddenly blow out; and proportionately to the revenue on individual projects, it could be quite significant,” Trish says. “Obviously from an overall company point of view, some of the losses on individual projects might not be significant; however, if that’s your business, you’ve got to control each and every project.”

Fully integrated business management software can make all the difference when controlling costs and calculating income & expenditure. For more practical tips on job costing and revenue recognition go to:
http://www.greentree.com/news/Beware-of-Data-Overload-A-practical-approach-to-job-cost-&-revenue-recognition.pdf