From cost to value: mastering the financial challenges of project-based management

In an economic environment defined by the constant pursuit of margin and risk control, project-based management has spread well beyond the construction and consulting sectors. For finance and executive management alike, a project is not simply a way of organising operations: it is a self-contained financial unit, a lens through which value creation is measured, controlled and optimised.
This introductory article looks at what the project perspective means across different business models, the underlying financial stakes, and the limits of non-integrated management.

From accounting by nature to job-based management

Traditional general accounting classifies financial flows by nature: purchases of goods, personnel costs and external services on one side, sales of products or services on the other.
While this approach remains essential for meeting legal and tax obligations, it falls short when it comes to managing the real profitability of activities.

What accounting by nature hides

A view focused solely on the overall income statement can hide wide internal disparities. A company reporting an overall profit may in fact be carrying heavily loss-making jobs, offset by very high-margin projects. Without an analytical breakdown by project, the exact source of performance or value loss remains hard to identify.

The project as a micro-business

Adopting a project perspective means turning each job into an independent financial entity.
Attached to this entity are an initial budget, purchase commitments, resource consumption, billing milestones, and a margin that is first estimated and then actual. The project thus becomes the right level at which to assess process efficiency, the accuracy of selling prices and compliance with contractual commitments.

Business models differ from one sector to another

The notion of a project does not cover the same operational realities or the same financial challenges from one industry to another.

Service and consulting companies

In IT services companies, engineering firms and consultancies, the main cost driver is human capital. Projects are structured around tracking the time employees spend on them.

• Key areas: controlling the utilisation rate, pricing the average daily rate, and tracking the gap between time sold and time actually spent.
• Financial stakes: profitability depends on the ability to track consumption as it happens in order to avoid non-billable overruns, particularly on fixed-price contracts.

Custom manufacturing and construction

For make-to-order businesses, equipment manufacturers and construction firms, projects often stretch over long periods and involve complex supply chains.

• Key areas: coordinating material purchases, managing subcontracting, tracking on-site receipts and handling contract amendments.
• Financial stakes: controlling committed costs and managing the risk of inflation on raw materials or external services.

Software publishers and R&D

In innovation activities, project-based management meets the need to track internal investments.

• Key areas: accurately allocating engineering hours dedicated to developing new products.
• Financial stakes: deciding between costs expensed immediately and development costs that may be capitalised on the balance sheet, in accordance with applicable accounting standards.

Corporate functions and internal projects

Even in companies that do not sell projects, project management is used to run internal initiatives (digital transformation, reorganisation, equipment roll-outs). The project then makes it possible to isolate a cost centre and measure the initiative's return on investment (ROI).

The pillars of project financial control

Managing a job from a financial standpoint requires going beyond simply recording invoices issued and received. Several fundamental concepts shape this management.

The Budget, Committed, Actual triad

General accounting only captures transactions when they are posted (purchase or sales invoice). This time lag exposes the manager to a risk of financial blindness.

• Budget: defines the cost and revenue target.
• Committed: includes purchase orders issued and subcontracting contracts signed, even if not yet invoiced.
• Actual: records actual consumption (hours logged, stock consumed, invoices posted).

Continuously comparing the forecast budget, committed amounts and the cost to complete is the only way to anticipate margin drift before it becomes irreversible.

Respecting period cut-off (WIP)

On projects spanning several months or several financial years, billing events rarely match the actual pace at which work is carried out. To avoid distorting periodic results, financial accounting must adjust for these differences:

• If work has been performed but not yet invoiced, accrued income or work in progress (WIP) must be recognised as an asset.
• If invoicing has run ahead of actual completion, deferred income must be recognised as a liability.

This adjustment mechanism ensures that the income statement reflects the economic reality of the activity over the period.

Tracking project cash flow and working capital

A project's accounting profitability does not guarantee its immediate financial balance. A time lag between paying suppliers or salaries and collecting customer receipts creates a working capital requirement specific to the project. Negotiating payment terms, tracking down payments and billing promptly on progress are decisive factors in protecting the company's overall cash position.

OpEx / CapEx decisions and classifying projects as fixed assets

Internal projects (software development, asset construction, engineering projects) raise the question of how to treat operating expenditure (OpEx) versus capital expenditure (CapEx).

• Capitalisation criteria: a project cost leaves the income statement to become an asset (tangible or intangible fixed asset via the own work capitalised account) if the asset is identifiable, controlled, and will generate measurable future economic benefits.
• Research / Development distinction (IAS 38 / French GAAP): the pure research phase must always be expensed (OpEx). The development phase can be capitalised (CapEx) once technical feasibility, the intention to complete the asset and reliable cost measurement have been demonstrated.
• Tax issues and depreciation: moving to CapEx spreads the accounting impact over several financial years through depreciation. From a tax standpoint, detailed tracking of project hours and expenses determines eligibility for incentive schemes (Research Tax Credit, Innovation Tax Credit, enhanced depreciation allowances). Insufficient traceability on R&D or software investment projects exposes the company to the risk of reassessment during tax audits.

The complexities of multi-currency and multi-company (Intercompany)

When projects cross organisational or geographical boundaries, new financial constraints emerge.

• Multi-currency management: on international projects, expenses (purchases, subcontracting, costs) and revenue (customer billing) may be in different currencies. Tracking the margin requires converting flows into the local currency while measuring the impact of exchange rate fluctuations. Exchange gains or losses can therefore alter the project's real profitability regardless of operational performance.
• Multi-company projects and intercompany flows: within a group, a project may be carried by one subsidiary while drawing on staff or stock belonging to another group entity. This setup requires rigorous intercompany flows: internal billing of time spent, application of internal transfer prices, and elimination of reciprocal transactions during the group's financial consolidation.

The limits of managing outside the information system

Companies often try to manage their projects using stand-alone spreadsheets. While this approach may be enough for small organisations or very simple jobs, it quickly runs into critical limits:

• Broken information chain: data entered by operational teams in the field is not synchronised with payroll, purchasing or accounting data.
• No single source of truth: discrepancies arise between the project manager's view (focused on physical progress) and the CFO's view (focused on posted invoices).
• Risk of allocation errors: manually re-entering time, costs or rates multiplies the risk of anomalies and delays the availability of management indicators.
• Inability to handle complexity: handling multi-currency, CapEx/OpEx allocations or intercompany recharges manually in a spreadsheet becomes a major source of accounting errors and reconciliation gaps.

To overcome these difficulties, integrating project-based management into the company's ERP is the solution that unifies the collection of operational data and its automatic translation into accounting entries.

Conclusion and next steps

The project perspective is an essential bridge between operational reality on the ground and strategic financial control. Whatever the nature of the business, organising the company by job makes it possible to secure margins, rationalise the use of resources, optimise the tax treatment of investments and ensure results are recognised accurately.

Putting this methodological vision into practice within an information system requires the right tool. The first instalment of this series will look at how these concepts are implemented in Microsoft Dynamics 365 Business Central, through scoping, work breakdown structuring, quote preparation and project budgeting features.