It’s no secret that keeping track of project costs is essential to ensuring successful project outcomes. But it can be difficult to know where to start, especially if you’re new to project management or you haven’t done cost tracking before. If you’re looking to incorporate cost tracking but don’t know where to start, this guide will help you get started on the right track.
This article will explore the basics of cost tracking and provide you with a 7-phase methodology for effective budget monitoring. We’ll also share some tips for staying on top of your expenses and avoiding costly overruns.
What is Cost Tracking?
It is the process of estimating, controlling, and measuring project costs. It’s an essential component of project management, as it helps ensure that your project stays within budget. With cost tracking, you can identify potential cost overruns early on and take the necessary steps to avoid them. At the same time, you can also track actual costs against your budget to see how well your project is performing.
Why is Cost Tracking Important?
It is essential in helping you understand your organization and your project’s overall financial performance. It helps keep your projects manageable and under control by providing visibility into project spending. Additionally, It can help you make informed decisions about allocating resources and how to best use your budget.
By comparing your expected expenses to your actual expenses, you can monitor your budget and cash flow fluctuation. As a result, you can make necessary changes to your project plan to stay on track.
The Steps to Proper Cost Tracking
It requires continuous communication among project management and execution parties to ensure effectiveness and accuracy. Every successful process involves seven crucial steps:
- Preplanning
- Estimating budgets
- Establishing cost controls
- Tracking costs
- Measuring results
- Updating forecasts
- Improving continuously
Preplanning
The first step in the process is preplanning. This step involves understanding the project’s objectives, developing a clear plan, and creating a budget. This is where you’ll also establish a cost baseline, which is the approved budget for your project.
Estimating Budgets
After you’ve preplanned your project and established a cost baseline, the next step is to estimate your project costs. This step involves creating a cost estimate, which is a detailed breakdown of all the expected costs for your project. To create an accurate cost estimate, you’ll need to consider all the resources required for your project, including materials, labor, and overhead.
Establishing Cost Controls
The third step is establishing cost controls. This step involves putting systems and procedures in place to track and manage project costs. Cost controls help you monitor spending and identify possible cost overruns. They can also help you make changes to your project plan to stay within budget. You will use cost control for elements such as:
- Materials
- Hardware
- Software
- Unexpected expenses
- Timesheets
- Vendor invoices
Tracking Costs
The fourth step is tracking costs. This step involves continuously monitoring actual project costs against your budget. Tracking costs helps you take steps to avoid costly overruns. At the same time, it also allows you to see your project performance against your budget. There are various ways to track costs, including:
- Tracking actual expenses
- Using cost management software
- Creating cost reports
Measuring Results
The fifth step is measuring results. This step involves comparing actual project costs to your budget to see how well your project performs. You can identify areas where your project is under or over budget by measuring results. You can then use the information to make changes to your project plan to improve your project’s financial performance.
Updating Forecasts
The sixth step is updating forecasts. This step involves periodically updating your cost estimates and budget to reflect actual project costs. Updating forecasts help you keep your project on track by ensuring that your budget is accurate.
Continuous Improvement
The seventh and final step is continuous improvement. This step involves constantly looking for ways to improve your process. You can ensure that your project stays on track and within budget by constantly improving. There are various ways to improve your process, including:
- Automating cost tracking
- Using cost management software
- Improving communication among project stakeholders
- Creating standardized reports
Tips for Effective Cost Tracking
Implementing effective cost tracking procedures is essential for any project manager. Here are some useful tips to help you get started with cost tracking:
Consult Your Team Members
Accurate cost tracking will depend on your specific team and how they perform their designated tasks. That’s why you should consider consulting these employees early on in the process. By doing so, you can better understand their workflow and what needs to be done to track their progress (and costs).
Understand Your Project’s Objectives
To track costs effectively, you need to clearly understand your project’s objectives. What are you trying to achieve with this project? What are your goals and milestones? Once you clearly understand your objectives, you can create a plan that will help you meet these objectives.
Create a Detailed Budget
A detailed budget is an essential tool for any process. Your budget should include all of the costs associated with your project, including materials, labor, overhead, and any other expenses. Once you have created your budget, you can use it to track actual costs and compare them to your budgeted amounts.
Monitor Your Project’s Progress
Continuously monitoring your project’s progress is essential. By doing so, you can identify any cost overruns and prevent them from hindering your project. You can also use project progress reports to compare actual costs to your budget and see how well your project performs.
Use DATAMYTE
As a bonus tip, we recommend using an online tool to streamline your cost tracking process. DATAMYTE is one of the leading providers of quality management solutions, including cost tracking capabilities courtesy of our own Digital Clipboard.
The DataMyte Digital Clipboard is a workflow automation software that turns data into actionable results using various tools and features. With the DataMyte Digital Clipboard, you can create comprehensive workflows and apps that revolve around cost tracking capabilities.
With an easy drag-and-drop interface, the DataMyte Digital Clipboard makes it easy to track costs digitally without any coding required. All you need is to create a cost tracking workflow and app using the DataMyte Digital Clipboard, and you’ll be up and running in no time.
To learn more about how the DataMyte Digital Clipboard can help you with cost tracking, visit our website or contact us today.
Conclusion
By following these tips, you can ensure that your cost tracking process is effective and successful. Implementing an effective cost tracking process will help keep your project on track and within budget. So go ahead and take advantage of this guide and DATAMYTE’s cost tracking capabilities today!
