Cost tracking

Cost tracking
See also
Bottom up budgeting Project budget Cost proposal Cost element Cost center Fixed budget Cost model Project cost management Costing system

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).

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