It's no secret that projects can be expensive. Even working with a small team, labor and materials costs can add up quickly. It's essential to budget, track expenses, and know how much money flows in and out of your project—and when. The best way to do this is by monitoring your project costs and documenting everything, so nothing gets lost or forgotten. Let's look at why it is essential to record and track all project costs and some practical means of tracking.
Documentation is critical. The importance of documenting and tracking project costs cannot be overstated. The best way to ensure that you keep a record of your expenses is to do so right from the start and make it part of your routine. If you're working on a small- to medium-sized project, it may feel like an unnecessary waste of time. But once you've got hundreds of dollars worth of materials in front of you (and have realized that they cost more than what was budgeted), it's much easier for hindsight bias to kick in.
Include ALL costs. The key is recording all costs, no matter how small, so don't forget about things like:
- Time spent working on your client's project (if applicable)
- Travel expenses incurred
- Supplies required (such as paperclips and notepads)
Use 6 Important Categories of Project Costs to ensure you have identified everything.
Accuracy matters. Keeping accurate records is imperative when managing the costs of a project. The various ways to track expenses include:
- Timesheets and spreadsheets
- Project management software
- Purchase orders and invoices
Choose the methods that make the most sense for your project circumstances and accuracy requirements.
No Surprises. Project cost management is an integral part of the project lifecycle and a critical component of good project management. It's a process that helps you manage overall project costs throughout the project’s entire life cycle. This includes consistently documenting and tracking all costs associated with your projects to monitor and control them effectively. This will avoid unpleasant surprises (e.g., running out of budget) for you as the project manager, the project sponsor, and others.
Less Waste. One of the most common reasons for a project's failure is cost overruns. A major contributing factor to overruns is waste. Project waste comes in many forms, including ineffective handoffs and poor quality. By documenting all costs, you will better understand how to reduce waste. Check out our previous article, 10 Forms of Agile Waste to Avoid, for more tips on the types of project waste that can occur and how to avoid them.
Manage Change. Managing change can positively impact your project and provide clarity about what needs to happen next to achieve success. It's essential to be prepared for any change. For example, if you're working on a project and the client asks for something that wasn't initially planned for in your contract, it may be time to renegotiate your contract before proceeding with the project. Always document and track project costs so that at any given point during a project, you'll know exactly how much money has been spent on materials and other resources and how many hours have been worked. For more change tips, read The Importance of Change Management.
To ensure your project’s success, it’s vital to have complete knowledge of all costs and expenditures. You can avoid unnecessary waste and stress by documenting spending as soon as possible after it is done, so no surprises arise later on down the line. By tracking everything spent on this venture, you will also see how much money has been saved or lost due to change orders and unexpected expenses.
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