The 7 Essential Reports to Managing Your Project-Based Business with Microsoft Dynamics GP: #7 – Profitability by Department/Sector

The concept of cross-disciplinary teams and how to measure the results by department is the hot topic in the professional services industry. The advantage of having this type of structure within an organization is that it allows you to have highly specialized resources that could be utilized on a variety of different projects. That is the reason why we have decided to include this report as one of the essential reports to better manage your project-based business.

The debate arises and the accounting manipulations begin when the department manager who is accountable for his or her own P&L must absorb the entire overhead cost for an employee (vacations, training, benefits, etc.) without being compensated for “lending” the resource to another group or department.

Ideally, these costs should be distributed throughout the different departments or allocate a markup to the department that this particular resource is working for, therefore not penalizing the “lending” group with all the costs and not over-valuing the “borrowing” group with lower costs per activity. For example, if Department B “borrowed” an employee from Department A without compensating them, the profitability by department would be not fully representative of the current situation. Department B would be seen as more profitable since no costs are associated to this department in regards to non-productive hours or overhead, whereas Department A would be assuming all the costs.

Managing this departmental sharing with markups or cost distributions becomes advantageous to both departments since this means that Department A is now working at capacity and Department B can now meet their immediate demand without rushing into any new hires. This is also where you may see the difference in regards to a department’s profitability.

The secret to having a report that allows you to review the P&L by department and by project, is by implementing a project accounting solution that allows you to automate these distributions and markups so that you will be able to ensure that these reports are as close as possible to the reality within your organization.

This is the final report within the series of “The 7 Essential Reports to More Efficiently Manage Your Project-Based Business”. To review the complete list of reports, download our complete eBook http://www.jovaco.com/en/library/how-to-measure-your-projects/.

By JOVACO Solutions, a project accounting specialist for professional service firms with Microsoft Dynamics GP