Management accounting for a small IT team

1. Introduction

Many small independent teams (organized groups of developers, analysts, consultants, etc.) work on the IT services market; they are no longer individual freelancers, since they appear to their clients as a single team, but still (or in general) are not full-fledged firms, since they lack in a complete form “support” processes peculiar to organizations in the following areas: work with personnel, management and financial accounting, document flow, etc.

Despite this, small teams also have to develop all these processes to some extent, including deal with their "internal automation". At the same time, it is very important to find a reasonable compromise between the functionality and the cost of resources for creating such “internal” IT solutions. After all, no one wants, for example, to lose hours and money, manually making mutual settlements between customers and team members. On the other hand, no one wants to spend their time and money on creating or implementing "tricked" systems instead of earning money on commercial projects.

Representing one of these teams, I want to share my experience of creating a small system for management accounting within my team in the format of an IT-case.

2. Business goals, problems and limitations

Basic goals:
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1. Ensure full transparency of settlements with customers
2. Provide full transparency of mutual settlements within the team.
3. Understand who, what tasks and for whom he performs at any given time.
4. To ensure the fixation of internal and external formal and informal agreements on the timing and estimated (maximum) labor costs for the tasks
5. Reduce the "unproductive" labor costs for the preparation of reporting documents for clients (accounts, acts, time-sheets, etc.)
6. Have the opportunity to analyze the financial results of the work performed

Limitations:

1. Temporary - ready to use in 1-2 weeks
2. Financial - the cheaper the better
3. Functional - the possibility of "gradual" building up the functionality at the same time using the solution as the current understanding improves and new business requirements for it appear with minimal "overhead" for the process of making changes (release of versions, testing, deployment, etc.)

3. Ideas from IT

Based on the goals and limitations, the following alternatives were considered:

1. Use some ready-made solution from the field of "general" accounting (for example, based on 1C)
2. Use some ready-made solution from the field of automation of development processes (for example, Redmine)
3. Make something of your own

After considering the pros and cons of each of these three options, it was decided to focus on option 3.

Option “1” did not suit because any such “ready-made” solution would have to be refined for the specifics of our tasks, and the labor costs for finalizing using the unfamiliar platform would hardly be less than creating such a solution from scratch based on proven technologies. Plus, we were confused by the need to change our settlement processes according to the logic implemented in the solution.

Option “2” was better suited from the point of view of reflecting the specifics of the IT team, but the financial and accounting part of the functionality was either not there or was not sufficiently developed.

Both in the case of “1” and in the case of “2”, the need to pay for the cost of licenses and the availability of additional functionality “into the load”, which in the foreseeable future was not required or was already implemented on the basis of other systems (for example, working with project schedules from the Redmine functionality have already been implemented using MS Project, and working with project documents and an internal interaction portal using Alfresco ECM).

In option 3, the opportunity to do exactly what you need now and gradually develop it as you expand and change requirements won over.

As for the platform for creating an accounting system from scratch, at first I planned to do everything within the internal interaction portal based on Alfresco ECM, but then decided to use MS Access. Access made it possible to do everything a bit faster and, most importantly, to make changes to the functionality as needed almost simultaneously with its use. This allows low overhead to work out the information model and user interface in real life. Then, if necessary, you can transfer the already developed technological solutions to a more productive platform. On the other hand, given the small size of the team and, accordingly, the small amounts of data processed, Access is quite suitable for these purposes.

4. Solution concept

So, our IT-solution for management accounting in a small IT-team is a Microsoft Access 2013 file, which includes a database, as well as a set of forms, queries and reports for working with it.

The central and most difficult task in developing such solutions is the creation of an information model reflecting the existing business objects and processes for working with them. In this case, there is no unique correct solution to this problem. However, the shortcomings of any proposed option that are not visible to the "naked eye" in the design, will make themselves felt, both in the design and in the subsequent use of the system.

A somewhat simplified information model of the variant I propose is shown in the diagram below.



The central element of this model is the “Project”. Projects differ in types in terms of directivity (internal, external and presale), as well as in terms of the way they are settled (fixed payment for an agreed amount of work - fixed price, payment for hours spent - time & material, without payment - non-commercial).

Each Project is associated with a specific Client; for one Client, several Projects can be executed.

The model allows making accruals (billing) for Project Clients in two ways, depending on the type of Project agreement:

• Based on the hours actually spent (for T & M projects) - instances of the essence Labor costs
• Based on the invoices reflecting the stages and terms of payment from the contract (for FP projects) - instances of the entity Accrual

To detail the work groups within the Project, the essence is the Task. The task is related to the elementary or total work in the hierarchical work structure (WBS) of this project. This ensures docking with calendar-network and resource planning, produced in Microsoft Project. The Task also stores various planned estimates of labor costs (initial, agreed with the Client, etc.) and consolidates the actual labor costs from the associated instances of the Labor cost entities.

Further, within the framework of a specific Task, Assignments to specific Resources are created. A resource is a person, a member of our team. In the future, it is also planned to implement support for not only labor, but also material resources. Each Resource has a certain cost (hourly rate).

An assignment is an agreement with a certain Resource to perform a certain amount of work (an estimate of labor costs agreed with the Resource) in fulfillment of a specific Task. For example, according to the Task “Creating a prototype” three Assignments can be created:

• Preparation of functional specification - for analyst Ivanova
• Prototype development - for programmer Petrov
• Testing - for tester Sidorov

In the process of making an Appointment, the performer or project manager records the daily amount of hours spent on that day of the corresponding Resource by creating an instance of the Employee entity.

Upon completion of the Assignment, the project manager assesses their quality and records in the form of an assessment of implementation. This assessment is subsequently used in analyzing the effectiveness of resources.

The final elements of business processes and the proposed information model are payments from Customers and for Resources. As in real life, there are two types of payments:

• Incoming payment - any receipt of funds in the general budget of the team (current accounts, cash), in particular, receipt under the agreement from the Client
• Outgoing payment - any expenditure of funds from the general budget of the team, in particular, payment for the work of the Resource

Payments are not limited to settlements between Customers and Resources, but reflect absolutely all financial calculations of the team (equipment costs, license fees, advertising, etc.). This allows you to fully control the team finances, incl. current cash balances. Also, for each payment, the corresponding expenditure or income item is indicated, which allows you to generate appropriate management reports on income and expenses.

Finally, by comparing Accruals, Labor, Incoming and Outgoing payments, current balances for Clients and Resources are automatically calculated (who, to whom and how much should be in total).

5. Tasks for implementation

To implement the concept described above, the following work was performed.

Task name	Work, h-h
Creating an information model, designing a database structure and UI forms	eight
Creating tables in MS Access, filling in directories and entering initial data	four
Creation of data macros in MS Access (implementation of business logic at the database level)	four
Creating forms in MS Access (implementation of interface logic)	eight
Creation of queries and reports in MS Access (implementation of analytics)	eight
Testing, trial operation and refinement	eight

Total: 40 man-hours .

The result is the following:

6. Cost Estimate

The costs of creating a solution by expenditure are shown in the table below.

Article	Cost Name	amount	Amount
Equipment	-	-	0 rub.
Licenses	Additional licenses besides existing MS Office are not required.	-	0 rub.
Works	Own work to create a solution at the rate of 1.200 rubles. in an hour	40 hh	48.000 rub.

Total: 48.000 rubles .

7. Evaluation of benefits

7.1. Direct economic effect

Name	Algorithm for calculating the economic effect	Amount
Reduction of labor costs for management accounting	Before implementing the solution, management accounting kept me on average about 1 hour a day, i.e. about 20 hours per month. This solution has reduced the labor costs for management accounting in 2 times, i.e. up to 10 hours per month. The economic effect in physical terms is 10 man-hours per month. At the rate of 1.200 rubles. per hour - this is 12,000 rubles. per month.	12.000 rub. per month.

Total: 12.000 rub. per month .

7.2. Indirect benefits

1. Improving the transparency of settlements
2. Reducing the number of errors in the calculations
3. Improving the quality of decisions due to the emergence of additional analytical tools
4. Improving customer relationships through a clear and centralized fixation of agreements on planned deadlines and labor costs to complete tasks
5. Improving relationships within the team through a clear and centralized fixation of agreements on planned deadlines and labor costs for making appointments

8. Efficiency analysis

The above calculations indicate a payback period for this solution is less than 4 months, even if we consider only the direct economic effect.

However, taking into account the fact that management accounting is a central strategically and tactically important function in principle, the influence of indirect benefits from the creation of a decision on its automation is more pronounced than the direct economic effect.

Those. It is safe to say about the high economic efficiency of this solution.