Construction Collaboration: Navigating the Intersection of Project Management and Accounting

Accounting and project teams work together to move the financial aspects of projects through to completion. Data sharing allows for concurrent review to make this possible. Teams need to share budgeting, cost tracking, project billing and payables, and compliance data.

These numbers are also relevant to company-wide accounting and company executives, but this article will primarily address the challenges, processes, and best practices for cross-functional collaboration at the project level.

The Importance of Collaboration

It can be challenging for accounting and project management teams to collaborate, but with organized processes in place, the partnership can support sound decision-making to keep a project on track. The health of a construction project depends on the money flowing in from billing owners and out to pay contractors.

This collaboration can take many forms depending on the size of the construction company, the number of people on the teams, and the specific project. However, all companies need smooth cooperation between these key teams to keep money flowing in and out, assess construction stages, and properly approve incoming and outgoing invoices.

Two Very Different Roles

The project manager is the point person for communication, the “glue” that connects teams. Project teams focus on operations while accounting maintains the accuracy of financial records. Accounting teams are generally less concerned with the project's day-to-day operations but see “the business” as a major stakeholder in their work and usually report to the CFO.

Project managers are responsible for executing the whole project and must keep all the stakeholders happy, including owners and subcontractors. However, finances are a critical component that impacts operations, including reporting and relationships with external stakeholders. Maintaining a productive collaboration with project accounting team members supports the whole project.

The teams work in different disciplines and have different backgrounds. A project accountant may have a CPA or a degree in accounting. Project managers need to be well-versed in how to build a project. PMs are more likely to have project management certifications, a background on construction sites or civil engineering training. The personality types and focus of the teams are very different, but finding the point of contact through an organized process for collaboration will ease communication.  

Processes for Cross-Functional Communication

The visibility of data for both teams is what allows for tight collaborations. Yet the complexity of the data requires companies to implement workflows adapted to their technology, personnel, and projects to ensure that the necessary information is accessible where and when it is needed for both teams.

Workflows for Collaboration

Members of each team need access to certain financial information, which is greatly enhanced by the shared data environment in project management software that provides a single source of truth. A platform solution allows for concurrent review so teams can efficiently perform tasks.

Setting up software with role-based permissions in a shared environment is foundational for collaborations. Within the software, teams can set up custom workflows to determine which team has final approval on each type of information.

Both teams are essential reviewers for documents like invoices, but there is nuance in which information goes to which team. Company structure and personnel help determine how to design clear operating procedures to delineate how the data is validated at each stage.

Integrating ERPs and Project Management Software

Enterprise resource planning (ERP) software for accounting management and other business functions is often a separate system from construction project management platforms, so setting up the integration for the necessary information between the systems frequently falls to the IT team. The software systems should exchange information easily and allow managers to set up permissions at different levels so staff can access necessary data concurrently.

Collaborating with External Partners

General contractors also need to develop workflows that allow them to efficiently work with external partners like subcontractors, owners, and vendors, who also have their own systems for accounting and project or product management. Establishing clear roles and timelines within the general contractor’s team is a first step, but coordinating with external partners on timing for invoicing and payment is also necessary.

Reporting and Analysis

When writing change orders and invoices, variance analysis can help teams stay on the same page. Teams can also use variance analysis to look at monthly progress reports, noting what changes have occurred and what to expect for the coming month, both financially and operationally. At project milestones, reports can provide accurate history and current status of the project’s finances. These overviews can help project managers step back and evaluate the project.

Invoices Tell a Story

Construction invoices are not just numbers but contain important information about the status of every project element. They make it clear from a legal standpoint what percentage of the work is complete and provide a paper trail that tells the project’s story through time, finances, and descriptions of work elements completed.

Whether billing the client or paying a subcontractor, the accurate details of each invoice contribute to the overall story of the project so that all stakeholders can understand the project status and payment history. Accounting and project teams both contribute information and double-check the accuracy of invoices.

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Challenges to Collaboration Between PM and Accounting Teams

While fewer people may be involved in project accounting at a small company, the challenge may be each one wearing many hats. Larger general contractors may divide responsibilities for various steps of the process among many employees. Clear communication between teams is necessary, no matter the size or structure of the GC.

Determining Optimal Invoice Review Processes

Each company needs to decide whether the PM or the accounting team will initiate the invoice process and which will have final approval. Many factors in the workflow, including validating the cost codes for invoicing owners, can help determine the most efficient process. Processes may vary based on the specifics of each project.

Cost Code Structures

Cost codes are attached to each line item in the budget, but the cost codes used by subs within their own cost code structure may differ from those in a GC’s ERP system, or the project’s cost code structure. This requires some analysis and alignment on the part of the GC when it comes time to bill the owner for the project. In other words, the granular details of how subcontractors invoice GCs may differ from the budget line items. 

Teams need to find ways to translate cost codes that don’t align with the contract line items so that operations and financial data are correct for invoicing and record-keeping. Establishing uniform cost code structures helps teams monitor project status and avoid errors and inconsistencies.

Balancing Project-Specific and Company-Wide Data

Leveraging the power of construction technology has transformed how companies make strategic decisions. The detailed information for each project also becomes part of the overall company numbers, which concern company officers more than the project team. Each project is a microcosm of the larger company, with a revenue and cost stream for each. 

A company’s whole portfolio of projects can determine the company's financial health, and the numbers need to be accurate within the ERP so the company’s officers can monitor the overall business.

Best Practices for Accounting and PM Collaboration

Each company and project may require different processes to communicate information and effectively maintain efficiency during construction projects. Here are some general principles that can assist teams in collaborating:

Establish Organizational Structure and Workflows

At the beginning of the project, set out a structure of clear roles between the project and accounting teams. Determine who is responsible for each part of the process. Develop and communicate clear protocols for how financial information is shared between teams. This includes setting expectations for timelines and approval processes.

Roles need to get worked out because every company will have slightly nuanced needs depending on whether they have a full accounting staff, so each project has an accountant, or one accountant is assigned to several projects.

Use Integrated Software Solutions

Implement permissions and information integration in the ERP and project management software programs—tailor workflows to fit the project's specific needs and processes. Implement role-based permissions and custom workflows that support the project's unique dynamics. This helps reduce errors and improve efficiency in financial tracking and reporting.

Determine Cost Codes

Develop standardized yet flexible cost code structures for consistent financial reporting. The cost code structure becomes the language between the project managers and the accounting teams.  Establish a standard cost code structure for the company and rules for handling exceptions, or groups for like projects

Include Accounting In Kickoff Meetings

Have a separate internal kickoff meeting with the project accounting team to provide them with the context of the project, its objectives, and any unique challenges. This can help accounting anticipate financial needs and timelines, set expectations for communications and foster a supportive environment.

Foster Open Communication

Project managers should regularly communicate with the accounting team to keep them informed about project updates and potential financial impacts. This helps in aligning both teams towards common goals.

Conduct Regular Variance Analysis

Use variance analysis to compare budgeted versus actual costs regularly. This helps in making proactive decisions and adjustments during the project lifecycle.

Enhancing Project Outcomes Through Collaboration

The project management and accounting teams complement each other, but establishing clear lines of communication for each project can lead to more successful collaboration. Project management maintains a clear view of work occurring on site while accounting staff track the timelines for cash flow during the project.

Clear communication for knowledge exchange and the transparency of shared data significantly contribute to the project's success.

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