Controlling Costs Through Budgeting, Tracking, and Reporting

Four Benefits of Controlling Costs

A project’s success depends on how well costs are managed. Every expenditure must be accounted for, controlled, and compared to your original projections. Here are four core benefits of controlling costs:

1. Identify overruns
   Cost overruns are a project manager’s nightmare. They can destroy profits and lead to failure. However, through regular expense tracking and reporting, you can identify these overruns in their early stages. That allows you to take corrective measures and adjust the budget before things get out of hand.
2. Build trust
   When everyone has clear expectations about the budget (and understands where money is being allocated), you improve trust. That is particularly important when dealing with investors and stakeholders. If others can see where their money is being spent, they’re more likely to trust you—both now and in the future.
3. Improve future forecasting
   By budgeting, tracking, and reporting expenses, you’ll create a formal record of what works and what doesn’t. That data is invaluable. You’ll learn from these successes and failures and use that information to improve your forecasting accuracy.
4. Maintain financial awareness
   Cost controlling promotes financial awareness and visibility. Through effective cost management, you’ll understand how your finances are being utilized. Every expenditure, no matter how small, is documented and monitored. When surprises come up, you’re aware of them and can take corrective actions before it’s too late.

Creating a Project Budget

So, how do you create a realistic budget that takes all costs into account? It starts in the early stages of your project.

Step 1: Identify Costs

When creating a budget, your first step is to identify all potential costs. Ask yourself: What are we spending money on? Gather your team and brainstorm together.

Think about labor such as vendors, consultants, and lawyers. Consider what you’ll spend on materials such as software, equipment, and supplies. And think through any travel expenses such as airfare, hotel stays, and car rentals.

Then, consider all contingencies, which are factors outside of your control. Contingencies can be positive or negative variables. For example, a vendor may raise their prices, or you may receive a discount for bulk orders. Think about all expected and unexpected costs.

Step 2: Create a Time-Based Budget

Once you’ve identified all costs, your next step is to convert those costs into a realistic budget. Estimate how much money you’ll spend on each item to achieve your desired schedule and scope. Split that allocation up into a time-based budget, which asks: How much will you spend during each project phase?

Then, once you have a clear idea of that time frame, perform one last check by asking the following questions:

• Do I need a contingency allowance for unexpected expenses? If so, how much?
• What’s worked in the past for similar projects? What hasn’t?
• What are the expectations and opinions of my team and stakeholders?

Creating a Project Budget

So, how do you create a realistic budget that takes all costs into account? It starts in the early stages of your project.

Step 1: Identify Costs

When creating a budget, your first step is to identify all potential costs. Ask yourself: What are we spending money on? Gather your team and brainstorm together.

Think about labor such as vendors, consultants, and lawyers. Consider what you’ll spend on materials such as software, equipment, and supplies. And think through any travel expenses such as airfare, hotel stays, and car rentals.

Then, consider all contingencies, which are factors outside of your control. Contingencies can be positive or negative variables. For example, a vendor may raise their prices, or you may receive a discount for bulk orders. Think about all expected and unexpected costs.

Step 2: Create a Time-Based Budget

Once you’ve identified all costs, your next step is to convert those costs into a realistic budget. Estimate how much money you’ll spend on each item to achieve your desired schedule and scope. Split that allocation up into a time-based budget, which asks: How much will you spend during each project phase?

Then, once you have a clear idea of that time frame, perform one last check by asking the following questions:

• Do I need a contingency allowance for unexpected expenses? If so, how much?
• What’s worked in the past for similar projects? What hasn’t?
• What are the expectations and opinions of my team and stakeholders?