The importance of containing costs and staying within budget cannot be overstated in today's tight business landscape. Now consider that just 43% of organizations report “mostly or always” completing projects on budget. That means a whopping 57% of organizations routinely come in over budget on projects. If your business is part of that percentage, then you know that it can wreak havoc on your company's financial health.

Enter cost tracking.

A vital aspect of project management, cost tracking systematizes the process of tracking, measuring, and sharing the financial status of a project over its complete lifecycle. In doing so, you position yourself to make real-time adjustments for better outcomes and enjoy more transparency with all stakeholders.

In this article, we’ll take a closer look at project cost tracking and why it matters. Then, we’ll walk you through eight steps that will help you put project cost tracking to work for your agency.

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What is project cost tracking?

Project cost tracking is exactly what it sounds like: the ongoing process of monitoring project expenses. It occurs over the full project life cycle and comprises multiple stages across pre-planning, estimating, tracking, measuring, and forecasting. (We’ll drill a bit deeper into each of these later.)

Together, these stages not only ensure that all costs are accounted for, but also facilitate course correction and continuous improvement.

Why is project cost tracking so important?

Anyone who’s ever undertaken a project knows how quickly (and stealthily) expenses can increase. Amplified over the lifecycle of multiple complex projects, and the results can be financially devastating.

Project cost tracking is a proactive preventative process for stopping snowballing before it starts. It's a common budget management strategy and an integral part of the project cost management (PCM) process.

Cost tracking has several benefits, including preventing overspending through careful allocating and estimating, minimizing risk, optimizing resources, and improving forecasting toward more accurate estimating and budgeting in the future.

8 steps for establishing a project cost tracking process

The cost-tracking process is a progression. Originating with a project’s inception and continuing through its completion, it comprises the following eight steps:

1) Develop accurate estimates

The project management life cycle comprises many elements. The more accurately you account for all of these and their costs, the more likely your project is to succeed.

Project cost tracking begins with rigorous and thorough pre-planning. During this stage, known as cost estimation, you’ll break out the individual components of a project and its tasks and milestones. You’ll then identify the labor costs, tools, material costs, software, and other resources needed to complete each task.

In addition to consulting with project team members (see #2) to identify specific budget items and their estimated direct and indirect costs, you can also use data from previous similar projects to enhance your estimations and other project cost estimation techniques.

And be sure to identify and factor in any potential contingencies or risks which might lead to unanticipated expenditures, cost management issues, and a derailed budget.

2) Discuss project cost and expectations with the team

Relevant team members, clients, and other stakeholders play a critical role in the budgeting and project cost estimating process. They’ll have the best sense of what’s involved and the associated costs. Stakeholders can also offer best- and worst-case scenarios to round out your understanding of potential costs when developing estimates.

Gather team members early on (whether in person or asynchronously) and ask for their input regarding costs. Their valuable insights will give you a jumping-off point as you begin to put the pieces of your project into place.

3) Allocate the budget accordingly

Once you have a complete look at all the expenses associated with a project and you’ve consulted with key stakeholders for their input, feedback, and approval, it’s time to allocate your budget. In addition to devising costs for each individual task, you’ll also create an overall estimate of the total costs for the project.

Look at your budget and compare it against your team’s input from step 2. Which areas are the most important? You’ll want to make sure you allocate budget to the highest priority items first so that your team has the resources they need to complete projects successfully.

This step is vital as your budget estimates establish a baseline that serves as the yardstick against which you’ll track and measure your progress and results. It also helps you create tighter budgets and provide more accurate forecasts to stakeholders.

4) Establish cost controls and assign roles

Allocating money is an important part of the equation. Equally important? Making sure project expenses are properly controlled. This is where cost controls come in. Protocols and processes that prevent over-budget spending and cost controls prevent a single person from maintaining responsibility over expenses. For example, you may require signatures for things like timesheets, hourly rates, labor costs approval, materials, vendor invoices, and additional expenses.

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5) Utilize a system and tracking tool

Manually configuring project estimates and executing cost tracking can be all-encompassing. The good news is that project management solutions like Teamwork can help you break down projects, create estimates and estimated timelines, assign resources, and schedule team members for specific tasks.

By bringing all of these things together in one place, Teamwork helps you streamline the workflow and also identify if/when a project veers off track.

However, this information is only as helpful as it is accessible. The ability for all stakeholders to access (and update) tracking is essential to making the most of it. This is another benefit of a system and tracking tool like Teamwork.

See how Teamwork can keep your projects on track and profitable.

6) Track costs and measure results

The key to successful project cost tracking hinges on measuring project progress. Teamwork’s profitability tracking tool lets team members track financial performance by project or team member and compare it against the estimated budget. You can even set notifications to let you know when spend reaches a predetermined threshold. It also lets you see everything in one place, including fixed costs, one-off fees, and ancillary expenses.

7) Compare actual costs with budgeted estimates

After each reporting period, your metrics should let you gauge how much has actually been spent compared to what you expected to spend. (Hopefully, your pre-planning work will have you in the ballpark.)

By comparing your actual budget breakdown with your budget estimates, you can catch and remedy any potential issues before they escalate.

8) Update forecasting and continuously improve

Despite the best efforts, projects don’t always go according to plan. While some costs will be out of your control, reporting always is. Updating your forecasted monthly budgeting is an important part of the process. Not only does it promote transparency with all stakeholders, but these updates are also an invaluable tool for future planning.

Manage all of your project cost tracking needs with Teamwork

Project planning isn’t an exact science. Neither is the project budgeting and cost-tracking process. Rather than viewing the wrangling of costs as an exercise in futility, look at it as an opportunity to gain as much control over the process as possible while also introducing mechanisms and fail-safes for keeping a specific project moving forward toward the finish line in the most cost-effective way.

While there are no guarantees in project planning, cost tracking can be a powerful tool for positioning your organization to minimize unpleasant surprises. It also lays the foundation for the best possible results — especially when you take advantage of time-saving project tracking software.

To start putting the power of financial and time tracking and budgeting to work for your business with the best project management software, try Teamwork for free today.