Project cost tracking is an essential and continuous practice that happens throughout the project. By using it, we aim to control the project cost and stay within the budget to ensure success. After all, the cost is one of the 3 key project constraints that affect the outcome the most.
Let’s look at how it is usually done and what tools you can employ to make project cost tracking a little easier.
What are Project Costs
Project costs are usually divided into 2 categories – direct and indirect expenses.
- Direct expenses are those directly tied to the project. This can be materials, salaries, software licenses, and anything else that is needed specifically for the project to be executed.
- Indirect expenses are those not directly related to the project execution. Amongst the examples, we would find rent, office supplies, accounting fees, and other similar things needed for the business to operate.
Both of these expense types need to be tracked and monitored as they influence the outcome of the project. Being too high they pose the risk of making the project unprofitable and being too low can suggest that project could have been executed faster. Thus, it is important to review and update your forecast throughout the whole project.
Project Cost Tracking
In most cases, tracking indirect project costs is rather straightforward. Most of the costs are known ahead of time and can be estimated quite accuratelly. With direct expenses, the situation is a little different. Even with the best estimation techniques, most projects tend to differ from the initial plan. And thus, the funds needed to execute different parts of the project change as well.
This is where the project cost tracking practices and tools come in very handy. Allowing the project managers to review the initial plans, evaluate the current situation and make correct decisions on how to proceed.
Typically, project cost tracking is done in 3 steps – planning the budget, tracking the costs, and updating the forecast accordingly. Let’s explore each of these steps in more detail.
Planning the Budget
Before the work can begin, the project must be planned and this includes the planning of the budget. Which means estimating how much money is needed to successfully reach your goal.
It is usually the project manager’s job to evaluate and estimate the overall cost of the project. This includes everything needed to achieve the desired outcome – direct and indirect expenses. Once this number is calculated, the project budget is agreed upon and confirmed. From this baseline, the project manager then decides how to allocate the money in the most effective manner.
This can mean dividing the budget on a monthly basis, allocatting specific sums for each stage of the project, etc. It is entirely up to the manager to decide which way is the best for their team. It is, however, important to document this decision in a way that the whole team is aware of it. This could be done using the team’s project management tool.
In the example below, you can see the budget is limited for each task board row. Allowing the team to quickly see what was allocated and how much of it is left.
Tracking the costs
Once the budget is set and highlighted for the team, then comes the second stage of project cost tracking. And this one is all about the tasks your team performs. At the planning stage or once you start working, you will define the tasks for the team to complete. For those tracking the budget, it then may be useful to assign a budget for each item. This way, you will know how much can be spent and when the budget is overreached.
If you are using a Gantt chart to visualize the plan, you can track both the individual task and total budgets for the project in the left column. Just like in the example below, there is a budget assigned to each task and then a sum displayed for each row.
Once the initial budget is set your team can begin working. Then, it is important to track the actual cost of your efforts and compare them to the initial estimates. This way, you will know how the project is doing and identify any needed alterations.
You can use several tools to track the actual cost for your team. If the costs are only related to how much work was done by your team, you could take advantage of custom hourly rates and time tracking features. Use your project management solution to define the hourly rate for each team member and then track how much time was spent on each task. You will be able to see an automated timesheet report on the total cost for your tasks.
If your expenses are more varied, you may enjoy another approach of using custom fields to track costs. By adding such a field to task details, you will be able to specify the actual cost for each item individually and then compare it to the budget. By doing so in a list view, you will also see the total values for each metric.
For those in need of understanding the bigger scope, take advantage of the Portfolio overview. Allowing you to quickly check the budget, SPI, and earned value for each separate project. This way, you can quickly understand the overall situation of each effort and decide whether the budget should be reallocated for better performance.
Updating the forecast
As your team continues to work on the project and you keep tracking project costs via various tools, you may notice there is a need to update your initial forecast. Whether it is because the costs are too high or actually lower than expected, it is important to keep your stakeholders in the loop and decide on the best course of action moving forward.
In some cases, you will have an extra budget and be able to get extra resources to complete the project earlier. In other cases, you will want to give the available resources to another project that is not doing so well. Effective and continuous project cost tracking will allow you to make the right decisions at the right time.
Project Cost Tracking Tools
As mentioned above, project management solutions like Teamhood carry various project cost tracking tools for your team to utilize. At the end of the day, it all comes down to understanding what you need and then finding a solution that fits those needs.
If you are looking for a tool right now, check out this list for the best project management software 2022. Or if you liked what you saw in this post, register for a free Teamhood account and start project cost tracking right away.
Passionate content marketer looking to bring better solutions to the project management space.
2020 - Present Marketing specialist at Teamhood.
2014 - 2020 Marketing manager for Eylean.