Many project managers will tell you that the worst part of project planning is budgeting. However, this is an essential part of the project, so it is important to learn and understand how to effectively track project costs and expenses. In this short guide, we will take a look at the importance of tracking and monitoring project expenses through the lifecycle of your project, and look at some of the techniques and tools that you might need to help you do this.
What are project expenses and costs
Very briefly, before we delve into just what you should be doing, let’s take a quick look at exactly what makes up your project expenses and costs. Project budget management is vital, and accuracy in your budget will help you to manage your expectations and also be accountable.
Direct vs. indirect expenses:
- Direct expenses – those costs directly linked to your projects; work hours, supplies, software.
- Indirect expenses – those costs such as utilities and office supplies not directly linked to a particular project.
Fixed vs. variable costs:
- Fixed costs – those budget items that do not change, i.e. rental payments, annual price of software subscription etc.
- Variable costs – these vary depending on the market i.e. cost of supplies, delivery fees etc.
How do you track project costs and expenses?
A great project plan, together with a budget can mean the difference between success and failure in your project. Carefully budgeting and tracking expenses helps you to avoid things like project scope creep and can enforce time management.
There are four steps you should take with your project budgeting:
1. Find the right cost-tracking system
Using time management tools and project management software is the most efficient way of project resource planning. Here are some examples:
Hubstaff
You may want to consider using a project cost management app like Hubstaff. This can help you with cost control in reports and also in forecasting insights. You can use it to set budget limits and work time alerts, which means you can make sure your team does not exceed the set budget. The time tracking software will keep an eye on salary and wages and you can also track billable and non-billable hours.
Procore
As a comprehensive project management platform that features robust cost tracking, this is another option to consider. You can track budgets, commitments and also actual cost in real time through the cost management module. You can also create and track detailed budgets, consider visibility in planned costs vs actual cost, manage change orders, track impact on costs and also make adjustments to budgets accurately. It can be used with a range of accounting systems for better data accuracy and there is no need to enter data manually.
Oracle Primavera P6
A project portfolio management tool that provides robust project cost tracking, it also allows for cost planning in detail whilst allowing users to allocate resources, link costs to activities, and create detailed project budgets. It has features for risk analysis and helps the project manager locate possible cost impacts so they can use mitigation strategies. Detailed cost reports can be generated using the customisable reporting feature.
2. Create a project budget that is realistic
With the right system in place, you can begin creating your project budget, and this starts with thinking about what should be included in the budget.
All projects are different, however there are some expenses that will be the same across all budgets.
- Materials and supplies – include anything purchased for a project. This should include software, machines, paper and printer ink, stationery and even tea & coffee supplies.
- Labour costs – include pay for internal and external teams including holiday pay and overtime.
- Travel – If your team travels for the project include all relevant travel and accommodation costs.
- Miscellaneous costs – factor in variable costs i.e., expedited shipping costs, other fees and even buying lunch for the team.
Each of these costs should be worked out carefully and added to your budget.
3. Ensure buy-in for tools by team members
It doesn’t matter how good the software is – if your team is not keen to use it. If they don’t understand the importance of tracking budget and time, then your tracking won’t work. Make sure that your team know how to use the software and that they understand the importance and advantages of doing so. Make sure everyone has access and everyone knows what role they have when it comes to updating details.
4. Automate everything you can
Project software is here to help you. There really is no point doing things manually when they can be automated, you are simply wasting valuable time.
Automated tracking has a number of benefits:
- Accuracy
- Real-time date
- Efficiency
- Consistency
Tools you may want to consider for automation include:
- Zapier – can help you integrate the applications you use the most ensuring data is in sync and no budget items or information are missed
- Jira – widely used as a project management tool offering great automation capabilities, which can automate repetitive tasks, streamline workflows, and ensure consistent tracking throughout the project
- Trello – a popular project management tool that enables automation through Power-Ups, these enable users to automate some actions, making task management more efficient with reduced manual effort
Some common project cost tracking mistakes
Ensuring you have a successful project journey means navigating all of your cost tracking correctly and accurately. There are some common mistakes that are easy to make which you need to avoid.
- Overlooking indirect costs – these are hidden expenses that can really mount up so you must make sure you account for them to prevent issues.
- Poor estimating – a few poot estimates can mount up so you may need to revisit your costs over time to make sure they are still accurate as prices can fluctuate.
- Ignoring change order – change happens in projects and ignoring it and not tracking the necessary adjustments can cause expenses you will not have budgeted for.
- Lack of contingency planning – if you don’t plan for the issues that might occur then you will not have sufficient buffers to get you through the additional costs,
- Poor record keeping – not writing everything down may mean missing something important. This is where automation can really help you.
In order to avoid these mistakes, the project manager needs to adopt a detail-oriented approach and ensure that all project expenses across the lifecycle of the project are fully accounted for.