What is a "Dimensional Accounting" System?

What is a "Dimensional Accounting" System?

Construction professionals know that accounting in their industry is often characterized by thin profit margins and quite a bit of uncertainty. According to¬†Accenture, only 30 percent of firms currently deliver projects on budget and only 15 percent deliver on time. Imagine how improving those percentages for your company would give you a significant competitive edge. Accurate forecasting and timely financial reports are crucial to successfully monitoring performance, controlling costs, improving profitability and managing cash flow. In order to get a real-time snapshot of where a project stands, good accounting practices must be in place so that problems are detected early, adjustments are made quickly, and lenders and stakeholders are kept happy. Following a dimensional accounting strategy is one common method used in the construction industry. Here’s why.

What’s the Difference?

Simply put, dimensional accounting can greatly simplify your accounting structure. Traditionally, general ledgers (GL) are made of a series of segmented numeric codes that represent the information you need to track, including natural accounts, (i.e. cash, receivables and accounts payable) department, location and any other details unique to the project. However, this structure can quickly get complicated and it’s difficult to provide accurate analysis. You must generate different codes for each transaction based on the natural account and the numeric code that each segment has been assigned. Imagine a construction company with five departments with 50 natural accounts each. That’s 250 different GL accounts. Adding a new project could force you to add hundreds of accounts. You’re left with a huge amount of data that is not organized intuitively, much of which will only be used once.

Conversely, dimensional accounting replaces the different account segments and just retains the natural account. To record different information for each segment, you just set up a dimension for each. Then, you simply tag each entry with the appropriate dimension. This creates a smaller account list that is easier to maintain and report on.

The Benefits

This simplified structure provides numerous benefits. Consider four.

  1. Increased reporting capabilities. As noted, accurate reporting is critical for construction projects. A traditional accounting structure would require IT to extract information out of an accounting system and import it into Excel. From there, Finance would manipulate the data for analysis. A dimensional system allows Finance to “slice and dice” data based on whatever criteria they want. Detailed analysis is available quickly. Comprehensive reports can be provided regularly with little effort to essential stakeholders.
  2. Accurately track business. Dimensional accounting software enables users to “tag” transactions and operational data with dimension values. This allows you to add business context to your data.
  3. Increase admin productivity. Dimensional accounting saves time in every step of the accounting process, including set-up, data entry, and reporting. Tasks that used to involve multiple people can now be done in minutes. It gives your Finance staff the flexibility and functionality to be proactive and focus on other key tasks.
  4. Gain flexibility. Construction businesses are always changing. Flexibility in accounting is critical. New projects, programs, grants and various other jobs and resources require the Finance Team to figure out how to input and track a dynamic business. With dimensional accounting, as your business expands you simply add the dimension types you need to track what’s important to you. Dimensional accounting empowers your Accounting department to adjust their data entry and reporting capabilities without significant restructuring.

Instead of spending days preparing quarterly reports, wouldn’t you like an accounting system that allows your Finance team to provide a real-time view of where the company stands within minutes? View performance from any angle you wish. Create reports using simple drop-down lists. Filter, group and organize your data at the request of any stakeholder. Talk to the experts at CFO on the go about implementing a dimensional accounting system for your construction business.