There is Art in Everything!
There is Art in Everything!
January 22, 2010 by Taylor Studios
This saying is a bit of a running joke around Taylor Studios’ office. I like to remind my number crunchers that even the game of business is art. There is art in predicting where the market is going to move, what our clients are going to love, how many staff members we are going to need in six months, how many projects are going to be delayed, and on and on.
This week this art was driven home to two of my staff when finalizing our year end books. We have to create a work in process (WIP) schedule that lines up the percent complete on a project, with billings, costs, estimated costs, total earned revenue, and so on. The Excel schedule created by our accountants has formulas that tie each of these factors together in a neat consistent manner. Well, our revenue, costs, estimated costs and gross profit do not operate in a neat consistent world. There are many variables that will change these estimates in each individual project.
Last week, my management team and I worked with our Controller, Jane, to finalize the percent complete of every project at year end. When Jane put this into the WIP schedule many of the 17 projects we were reviewing were obviously wrong in their gross profit percent and other variables. I sat down with Jane and Drew, my PMO Manager, and said I know we have to follow GAAP (Generally Accepted Accounting Principles), but this is not a perfect formula. We went through each project and I calculated what I thought the estimated future costs on the project would be based on things like: who is the client, are they slow at making decisions, who is the team on the project, is the end date set in stone making it less likely we will have delays, have we beat our time goals so far on the project, is it a difficult project to install, etc. I then calculated how many hours over or under our time goals I thought the project would be. Boy, this really made Jane and Drew uncomfortable. Drew was trying to type in a formula in excel and it just didn’t work.
Today I will be reviewing this with my accountants. I will be explaining that our projects do not have consistent costs throughout. In the beginning of a project, our costs could be very low, but as we go through each stage, those costs change proportionately. They will have to agree that we can forecast this way and still be GAAP compliant.
Many leaders fail because they do not make the tough decisions in a timely fashion. They want to wait until all the data is available before making decisions. Doing nothing is a decision, but often a bad one. The best leaders use their expertise to make decisions without perfect data. There is art in the game of business.
What decisions did you make today? What intuition did you use?
Posted by: Betty