Standard method for tracking project revenue/expense across multiple departments

I started at a professional services organization and I'm working on a budget for the company and its multiple lines of business. They have a small percentage of employees that work across a few of their departments. Is it standard/common to have the revenue follow the employee or to have the employee's expense follow the revenue generating department? My example: Joe works for Fred in the engineering department. Due to resource utilization and winning of big project in the software department, Joe is going to use his billable hours to assist with the big project and help the software department. When revenue is scored for Joe's work should it go to Fred's department because that is his direct report? Or should the revenue flow to the software department and Joe's expense go to the software department as well? What is the common way to trace the revenue/expense as it relates to these multi talented employees? What are the pros and cons of one way over the other? I appreciate any help here.

Answers

Ivy Freeman Director, Finance • December 10, 2015

When I worked with a marketing firm, our work groups were set up so that people from various departments would work on one project (i.e., website development project would utilize an account manager, a web developer, a graphic designer, etc. and everyone had their own "home" department). In those instances, the revenue and expenses would follow the project - or in our case - the client. So the website was for Nestle. All of our Nestle projects had assigned revenue and expenses, generated from work completed out of various departments.

In my opinion, having revenue and expenses follow the employee or the project department can get convoluted for the very reasons your questions have exposed. It would seem like an accounting nightmare.

Assign all of your resources (human, technical, support, collateral) by client and by project, that way you are able to identify how profitable any one client or project becomes. Additionally, to measure your human resources efficiency, measure staff billable hours and utilization. It will tell you how productive they are with their time.

EMERSON GALFO CFO • December 10, 2015

Billings, Management Reporting, Financial (tax/audited) Reporting, Joe's cost and expense classification can be treated differently depending on the purpose,,,,,all at the same time!

Len Green Performance Improvement Consultant and ERP Strategist • December 10, 2015

Anon
The choice you need to make is really driven by:
1. what top management decide is needed
2. whether your budgeting and financial management/PSA software can do it without massive manual manipulation

In some companies, tracking by client project is key; in others, revenue and expenses by employee are more important. That is why 1 is a key driver to designing your budgeting model and configuring your financial management/PSA software.

As regards #2, let's start with financial management/PSA software capabilities:
resource planning and scheduling, time and expense entry, billing and revenue recognition, project accounting and reporting, organization structure (offices, departments, market segments) etc. You don't mention what system you are using or whether you are looking to use a better system.

Regarding budgeting, are you planning to use Excel or a budgeting/planning tool?

Modern financial management software can be configured in a number of ways that do not convolute the transaction processing. I'm happy to explain further, but it's probably best in a conversation. Feel free to reach out to me here via private message or [email protected]

Best regards
Len

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Standard method for tracking project revenue/expense across multiple departments

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