Critical Project Management Skill: Managing Project Costs

Written by lewsauder

December 11, 2020

Project Cost Management

One of the key responsibilities for any project manager is managing the project budget. There may be many aspects to it. There may be consulting fees, travel, software and hardware, and even office space expenses.

It is a skill that even seasoned project managers struggle with. The key is to stay on top of it on a regular basis and address concerns before they become major discrepancies.

Plan out expenses by week

When you start a project, determine all of the expenses that the project will experience throughout its duration. This includes hourly costs of consultants (and internal employees if the budget is charged). Other considerations include any software that will need to be purchased, travel expenses, training, meals such as team lunches, and any equipment that will need to be purchased for the project.

There is a tendency for project managers to spread expenses out evenly throughout the remainder of the project. This can lead to inaccurate tracking. Plan the expenses as closely as possible for each week of the project.

You may have a large outlay at the beginning of the project if training and equipment needs to be purchased early. Consider times during the project that people might be traveling. Allocate the appropriate expenses to the appropriate weeks.

Staffing is rarely level throughout the project. Most projects have a small team at the beginning and ramp up gradually. There may be peaks and valleys throughout the project. Consulting and labor hours should be planned based on when they are expected to occur.

Use a spreadsheet with planned expenses in a column for each week.

Track expenses by week

Once you have expenses allocated week to week. Track them every week. Assuming all project team members report their time weekly, designate a day of the week to record all of their hours. Enter the actual costs all expenses for the week.

This requires discipline from every project team member. It requires team members to report their time and any expenses every week. It also requires discipline from an already overtaxed project manager to take the time to record all of the information weekly. This task includes the burden of tracking down the team members who are late in their reporting.

Once actuals are recorded, step back and compare it to what was planned. If the variance is more than 10% (over or under), consider the areas where it is off. Did someone who you had planned to travel delay it for a week? Were any expenses not reported?

If you didn’t incur an expense that will be reported later, you know that you are under budget and it will eventually be reported. It’s always better to know early if an unplanned expense occurred. You can make management aware or reduce future planned charges to stay on budget as necessary.

Report expenses by week

As you track expenses weekly, include the information in a report to senior management. This can be part of a weekly status report. A separate report can be provided to the project sponsor if this report is distributed to folks who should not be aware of the budget.

Show planned and actual expenses for each week. Show it for the overall budget too. Explain any variances for the current week and overall. This gives management clear visibility to the project budget and how closely it is tracking to the overall plan.

Conclusion

Tracking project budget is one of the more mundane tasks that a project manager has to do. But planning and tracking it on a weekly basis provides visibility to everyone that needs it. The key is to plan it weekly and track it weekly. It is never a welcome surprise to run out of funds for a project with weeks left to go.

If you would like to learn more about a career in Project Management, get Lew’s book Project Management 101: 101 Tips for Success in Project Management on Amazon.

Please feel free to provide feedback in the comments section below.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Lew’s Books at Amazon:

Project Management 101
Consulting 101
The Reluctant Mentor

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