What is cost tracking?
Cost tracking is an aspect of project management dedicated to monitoring the project's financial health. This ongoing process starts at the beginning of a project’s lifecycle and is carried out until the project is complete.
Cost tracking requires communication between the project management team and key stakeholders to be done as accurately as possible. Project cost management software is often used to monitor the project's profitability, identify actual costs, and compare them to calculate profit.
Stages of cost tracking
Cost tracking is done in various stages throughout the evolution of a project. These stages include:
- Pre-planning: The project team collects data to create a budget estimate. Potential resources are determined, and elements like labor costs, software, and other materials are considered.
- Estimating budgets: The information from pre-planning is then used to create a project budget estimate, which gets approved by key stakeholders. This estimate is used to measure actual expenses so the team can see how the project is progressing.
- Establishing cost controls: Cost controls help project managers get the right amount of money where it needs to go to ensure a smooth and successful project. Cost control is needed for elements like materials, hardware, software, vendor invoices, timesheets, and unexpected expenses.
- Tracking costs: Budget tracking records all costs and how they relate to the baseline budget. Tracking these costs makes it possible for the team to understand how the project fits into the budget and where adjustments must be made.
- Measuring results: At the end of each reporting period for a project, calculate how the project is stacking up against the estimated budget and if expectations are being met.
- Updating forecasting: Let relevant team members and stakeholders know what has changed within the project or its budget. Doing so allows the project manager to document and justify any changes that have been made.
- Continuous improvement: Cost tracking improves how a team executes projects, while also providing transparency to everyone involved in the finished project.
Benefits of cost tracking
Effective cost tracking has business advantages that project managers shouldn’t overlook. Some of these benefits are:
- Prevent spending: When a team allocates and estimates for costs in the pre-planning stages, the project manager can ensure overspending doesn’t occur in specific areas.
- Avoid risks: A budget estimated using the correct data will have a low-risk allowance, giving the project its best chance of success, even if unforeseen risks occur.
- Improve forecasting: Reports made from cost tracking can help a team optimize the resources needed to succeed. This can lead to more accurate budgets for future endeavors.
Cost tracking best practices
There are specific best practices to follow in order to do cost tracking correctly. These best practices include:
- Discuss with team members: Accurately tracking and projecting costs is dependent on the team and how they perform their tasks. Consult with team members during pre-planning to learn more about their expectations, timelines, goals, and more.
- Keep track of data: Proper data collection can simplify the cost-tracking process for all parties involved. Project management software comes in handy during this step, in addition to spreadsheet software to compare numbers and keep costs grouped and organized.
- Provide proper access: Any team member who could make or break the project budget should have access to the project’s cost-tracking data.
- Use time tracking software: When estimating the cost of resources, team members can use time tracking software to log hours using a task timer. A project manager can then use this information to determine how long tasks take and the number of resources that will be necessary.
