One of the biggest stumbling blocks that project-based companies encounter when implementing an enterprise resource planning system (ERP) is that most accounting software isn't built for project work, and most project management systems lack robust accounting tools, making it difficult to determine the profitability of projects. It’s not surprising that many companies can’t really tell you which of their projects were the most profitable off the top of their heads; to figure it out would take a tremendous amount of time and effort exporting and correlating data between disparate systems.
That’s because most ERP systems are designed to book revenue/costs against an accounting code, so costs and revenue may not be accurately allocated to individual projects and even if they are, information becomes siloed with no easy way to analyze or compare to other projects. What happens when you have expenses that touch more than one project and how do you handle overhead charges that need to be distributed over a group of projects? If these types transactions are recorded in general accounts or misallocated it will reduce the accuracy of any profitability reports.
Having these tools allows you to understand your project profit margins and determine which are worth trying to duplicate. Conversely, project profitability reports can help you understand which types of projects are not worthwhile – or things you may want to avoid or that would need to be better evaluated in the future in terms of budget.