Why Project Accounting Decisions Are Often Made by the Wrong People

(and why this almost always leads to problems)

In many organizations, decisions related to project accounting in Microsoft Dynamics 365 Finance are made very early — often without formal arbitration, without a clear framework, and without a full understanding of their medium- and long-term financial impact.

The problem isn’t the tool.
The problem isn’t complexity.
The problem is where — and by whom — these decisions are made.

A decision that looks operational… but isn’t

Choices related to:

• project types
• financial and analytical structures (projects, sub-projects, categories)
• the level of control and granularity

are often treated as operational or technical setup decisions.

In reality, these choices directly shape:

• financial transparency
• variance analysis capabilities
• the operational effort required from teams (project teams, procurement, finance)
• the quality of information available to senior management

In other words, these are organizational design decisions, not system parameters.

(Related: ERP governance and decision rights → https://www.fitgapfinance.com/erp-governance-model-roles-decision-rights/)

First challenge: what leadership wants to see… and what it actually costs

Very often, project structures are designed around what senior leadership wants to report on:

• detailed cost tracking by phase or work package
• comparisons across projects
• deep variance analysis

What is frequently underestimated is the operational effort required to produce that level of insight.

For example:

• deeper granularity often implies:
  • more purchase order lines
  • stricter financial coding discipline
  • additional upstream controls
• that effort falls mainly on:
  • project teams
  • procurement
  • finance

When this impact isn’t explicitly assessed, organizations create a gap between analytical ambition and execution capacity.

Second challenge: project managers’ need for flexibility

From a project manager’s perspective, priorities often differ.

They naturally favor:

• flexible structures
• fewer constraints
• the ability to offset overruns with savings elsewhere

This flexibility allows them to:

• deliver without constant justification
• react faster to unforeseen issues
• avoid repeated escalation on every variance

That need is legitimate.
But when left uncapped, it directly conflicts with:

• financial transparency
• project comparability
• finance’s ability to explain results

Third challenge: too many controls can undermine agility

When issues surface, the typical reaction is to add more controls:

• blocking rules
• additional approvals
• more rigid structures

If poorly calibrated, this often backfires:

• reduced project agility
• increased administrative workload
• team frustration
• system workarounds (Excel, shadow processes)

An ERP that becomes overly restrictive rarely produces better data —
it usually pushes users outside the system.

(See also: Psychological resistance in ERP projects → https://www.fitgapfinance.com/erp-psychological-resistance/)

Fourth challenge: every function optimizes for itself

Within any organization, each function will naturally advocate for what helps it most:

• finance wants clean, auditable data
• project teams want flexibility
• procurement wants streamlined processes
• IT wants a stable, maintainable configuration

None of these needs are illegitimate.

Problems arise when there is no explicit prioritization at the executive level.

Without clear direction, the system becomes an implicit — and often incoherent — compromise between competing interests.

The real issue: arbitration and accountability

The challenge is not choosing between:

• transparency
• agility
• cost control
• operational simplicity

The challenge is making those trade-offs explicit.

It is the role of senior leadership, supported by finance, to clearly define:

• what is truly prioritized
• which compromises are acceptable
• where the organization is — or isn’t — willing to absorb operational cost

Without this clarity, structural decisions are made locally, project by project, and overall financial coherence erodes.

What more mature organizations do differently

Organizations with strong project accounting discipline typically have:

• a clear framework for project accounting objectives
• defined expectations for analytical granularity
• mandatory finance validation for structural decisions
• deliberate balancing between control and agility
• governance owned at the appropriate leadership level

This isn’t advanced system configuration.
It’s basic financial hygiene.

(Related: Data quality and structural discipline in ERP → https://www.fitgapfinance.com/data-migration-in-dynamics-365-how-to-avoid-the-most-costly-mistakes/)

Key takeaway

Project accounting issues rarely come from a single bad setup choice.
They usually result from implicit trade-offs that were never clearly owned.

👉 Clarifying priorities — and consciously accepting the associated compromises — is often the simplest and most effective way to sustainably improve project accounting.

This article is part of the FitGap Finance – Project Management & Accounting series, focused on finance-led ERP design, governance, and decision-making beyond go-live.

🇫🇷 Version française: https://www.fitgapfinance.com/decisions-comptabilite-projets-dynamics-365-finance/