To stay sustainable in today’s competitive and unpredictable global market, your business requires a forward-looking Risk Governance Framework.
A process framework to capture and verify information through the issue, receipt and record of project documentation to affirm project status and produce a reliable Earned Value General Ledger in real-time.
This is something that most businesses undervalue a lot.
What if I ask you, how important are the answers to the following questions for your business sustainability?
- Individual project liquidity report as of “past minute”?
- Preparation of contractual documentation as per the job, legal, managing and auditing purposes?
- Realistic $$$ value of – a project’s contribution (to the business bottom line), upon completion and value earned to date?
- Who is up to date with their Risk2do assigned items?
- How do you manage, monitor and predict the impact of the approved and outcome of the unapproved variations?
This list goes on and on.
With each question, the uncertainty and fear go up; and with each answer, the situation gets reversed! The side with the “answers” seems safer.
Before diving deep into the value of a detailed process to achieve earned general ledger and other KPIs of a healthy project-based business; let’s think for a second…
What are the reasons behind failure of the construction businesses?
Why so many construction businesses have gone belly-up in the past decades? Even more importantly, let’s try to find the common factors and practices that seem consistent among such businesses.
The obvious one is that most of such construction businesses that went under administration; declared large profits (and paid too much Tax) just before they went bankrupt. As good project managers claim payments well in advance of approving sub-contractor claims, without a mechanism to correctly support a work in progress liability. Among many potential reasons, one most certainly was either overstating or overestimating profits or doing both!
Why Earned Value General Ledger is Important?
We believe the importance of the real earned value of a project is hard to exaggerate. The project team should have real-time consolidation of the accounting transactions, a framework for predicting final cost and income; giving management the basis for predicting gross project contribution, and hence the value of contribution earned to date.
A direct impact of not being able to manage and monitor the value of the earned general ledger and/or liquidity. Wouldn’t it be perfect if they could have real-time consolidation of the accounting transactions, project liquidity, while complying with the international accounting reporting standards? All done from the project management point-of-view to deliver accounting results (not the other way around).
Simplification of the very-complex project reports with one version of the truth can help, to improve short term liquidity and medium-term profitability without risking your business.
Traditional Accounting’s Impact
Traditional accounting of income-less recognised expenses results in companies paying a higher amount of tax than they should be. We are not saying that the traditional accounting approach is wrong or flawed in any way. Because it is not! Your compliance accounting too needs to be made productive.
It’s just the nature of the construction business that requires a different approach.
Forecast income at completion (or head contract variation review) – forecast cost at completion (by order and subcontractor)!
Traditional accounting can lead to confusion between liquidity and profit. Which undoubtedly is not an ideal situation to be in for any business. It’s not a secret that most construction businesses fail due to liquidity issues. You need to make sure that your liquidity report stays updated with the accounting transactions.
It would be safe to say that long term profit is pointless, if short term liquidity is killing the business!
In the end, one would ask a reasonable question, that what is the solution after all?
The Solution That You Were Looking For…
There are a few progressive businesses out there who are addressing this issue in their own way. But a system designed and developed by a project manager to deliver accounting results is Muli. Our solutions are compliant with international standards.
Designed from the project managers’ perspective, Muli focuses on project costing, activity / risk management, project reviews, subcontracts & retentions management, and the approval of progress claims.
The seamless integration with Muli’s project payroll and accounting modules ensures all the key data is available to the management to monitor the profit contribution and liquidity of each project based on the forecast cost and income at completion.
Dating back to 1982 (pre-PC era), we have had only one focus, and that is making sure that the builders/contractors get their own system. Now, we can say with a strong claim backed by our state-of-the-art system, that:
Builders and Contractors have an Accounting System… It’s called Muli!!!
