Cost tracking

Cost tracking is especially important activity for project management, but might be also related to measurement of cost within the whole company. It shows expenditures which were made versus the plan in areas of: labour, materials, capitals, vendors, contractors and support costs. The tracker should be done weekly, or at least monthly (for big projects).

Why cost tracking is important

Cost tracking supports many management functions, performance evaluation, helps to manage successfully and might be base for decision making process such as make or buy decision (if resources should be gained internally or contracted). It might be used to create kind of "road map" showing how to achieve the goal, also, be tool in comparing departments in organisation from cost perspective (especially when organisation wants to have centralised functions). Generally cost tracking is related to better management in areas of:

• capacity management - organisation knows when more people or other resources are needed, what is the number of productive hours,
• funds management through the year - optimisation of outputs for example helps to choose the best contractors in the future,
• risk management - on strategic, operational and tactical level,
• superior value management - each contract might have justification process which identifies efficiency),
• control functions - such as control of contact costs thanks to cost visibility, costs of products and services,
• other areas - such as efficiency monitoring, planning. efficiency analysis, what if analysis, budgeting, funds optimizations, benchmarking etc.

SMART cost tracking

To give guidelines how cost tracking should be prepared, SMART method might help to define specific characteristics. Data should be:

1. Specific and accountable,
2. Measurable and comparable,
3. Aligned with goals of organisation,
4. Reastic in capacity of organisation and reliable,
5. Timed within some time periods.

Cost tracking policy

Cost tracking might be supported even better, when the company decides to create cost tracking policy. It might be part of pricing policy as well:

• Reporting of costs should be unified so that cost details should be reported at the same level of details that organisation requires,
• Costs are assigned to defined cost objects during the period, it helps to measure performance and enables visibility of all cost components - such as labor hours, services, materials and links costs to outputs (cost objects),
• Requirements about proving proper level of details should be included in contracts and helps to unify standards (for example all contractors report the same level of details).

Examples of Cost tracking

• Labour: Tracking the number of hours spent on the project by employees, as well as any external contractors or vendors.
• Materials: Keeping track of the cost of any materials used in the project, including raw materials, equipment, and tools.
• Capitals: Monitoring the cost of any investments made in the project, such as capital costs for purchasing new equipment or software.
• Vendors: Tracking the cost of any services purchased from external vendors, such as IT services or marketing.
• Contractors: Keeping track of the cost of any contractors hired to complete specific tasks related to the project.
• Support Costs: Monitoring the cost of any additional expenses, such as travel expenses or administration fees.

Advantages of Cost tracking

Cost tracking has many advantages:

• It allows to compare the actual cost with the expected cost, enabling to take corrective measures if needed.
• It helps to identify high-cost areas and develop strategies to reduce the costs.
• It keeps the project on track and within budget, ensuring that the planned objectives are achieved.
• It helps to identify potential savings and budget optimization.
• It helps to identify any cost overruns and take corrective action to prevent further cost overruns.
• It helps to identify any potential fraud or misuse of funds.
• It aids in forecasting future costs and budgeting.
• It allows to control the project cost and provide timely information to the stakeholders.

Limitations of Cost tracking

Cost tracking is a vital process for monitoring project costs, but it has several limitations. These include:

• Inaccurate estimates: Cost tracking relies heavily on an accurate estimate of the project’s costs. If the estimates are inaccurate, then the cost tracking will be inaccurate as well.
• Inadequate tracking data: Cost tracking requires reliable data from vendors and contractors in order to be effective. If the data is incomplete or unreliable, then the cost tracking will be inadequate.
• Lack of resources: Cost tracking is often limited by the resources available, such as personnel and technology. If there are not enough resources, then the cost tracking will be incomplete.
• Poor communication: Poor communication between all stakeholders can lead to inaccurate cost tracking, as important details may be overlooked.
• Inefficient processes: Cost tracking can be hampered by inefficient processes, such as lengthy approval processes or slow payment systems.

Other approaches related to Cost tracking

Other approaches related to cost tracking include:

• Budgeting: This involves creating a plan to forecast the expenses of a project in advance. It provides visibility into the expected costs of each step of the project and allows for more accurate tracking.
• Cost control: This involves monitoring the cost of a project and comparing it to the budget. It helps to identify any discrepancies or areas where the project is over budget, allowing for corrections to be made.
• Performance tracking: This involves measuring the performance of each element of the project in terms of cost. It helps identify any areas of inefficiency and allows for corrective actions to be taken.
• Financial reporting: This involves creating periodic reports that provide a comprehensive view of the project's costs. It helps to ensure that the project is operating within budget and provides insights into possible areas of improvement.

In summary, cost tracking involves a variety of activities such as budgeting, cost control, performance tracking, and financial reporting. It helps to ensure that the project is operating within budget and provides visibility into any discrepancies or areas of inefficiency.

Footnotes

Cost tracking — recommended articles

Operational control — Resource plan — Planning and control — Project cost management — Budgetary control — Cost management plan — Allocated cost — Management by the numbers — Strategic planning functions

References

• Badiru A. B., Osisanya S. O., (2016), Project Management for the Oil and Gas Industry: A World System Approach. Systems Innovation Book Series, CRC Press
• Hill G. M., (2009).The Complete Project Management Methodology and Toolkit, CRC Press
• Hu X., Wu L., Hu C., Gao H., (2012), Fuzzy guaranteed cost tracking control for a flexible air-breathing hypersonic vehicle in "IET Control Theory and Applications Vol. 6, Iss. 9", The Institution of Engineering and Technology
• Poulek V., Libra M., (2000),A new low-cost tracking ridge concentrator, in "Solar Energy Materials & Solar Cells 61", Elsevier
• The Deputy Assistant Secretary of the Army for Cost and Economics, (2012), Cost Management Handbook, The Deputy Assistant Secretary of the Army for Cost and Economics

Author: Dominika Kaczmarczyk