The Ultimate Guide to Project Cost Tracking and Expense Management

Project budgeting is arguably the most dreaded part of project planning. But, learning how to track project costs and expenses is crucial.

​​Picture this: a project teeming with potential, spiraling into chaos due to the lack of effective cost tracking. One misstep in budget management can set off a chain reaction, jeopardizing timelines, straining resources, and ultimately, impacting the project’s success. It’s the story we’ve seen unfold far too often, where the consequences of poor cost tracking reverberate throughout the project lifecycle.

Here is the TL;DR version: to improve project budgeting, use project management software.

Follow these steps to automate project tracking: 

1. Find an automated project cost tracking system.
2. Create a realistic project budget.
3. Ensure you have team members on board.
4. Automate your tracking system.

This step-by-step post will show how to create a project budget, double-check accuracy, and automate tracking. We’ll teach you some project management estimation techniques to help you avoid overspending or running out of money.

Understanding project expenses and costs

Your business depends on project budget management. Accurate budgeting helps team leaders manage expectations and remain accountable. 

But first, you need to understand the costs you should be budgeting for. Let’s quickly brush up on some key terms.

Direct vs. indirect expenses:

• Direct expenses: costs directly tied to your projects, such as work hours, supplies, or software. 
• Indirect expenses: other costs such as utilities and office supplies that are not directly related to the project. 

Fixed vs. variable costs:

• Fixed costs: budget items that will not change, such as rental payments or the annual price of a software subscription.
• Variable costs: vary depending on the market, such as the cost of supplies or delivery fees.

2024 updates: latest trends in cost tracking

Staying ahead of the curve is crucial, especially for cost tracking. Let’s explore the latest trends reshaping the landscape of project financial management, from real-time data integration to the adoption of innovative technologies and methodologies.

• Real-time data integration: The latest trend involves real-time financial data integration with project management systems, providing up-to-the-minute cost insights and allowing for immediate decision-making.
• AI and predictive analytics: Artificial intelligence (AI) and predictive analytics are increasingly employed to forecast future costs, identify potential risks, and optimize budget allocation based on historical project data.
• Blockchain for transparency: Blockchain technology is being explored to enhance cost tracking transparency. It ensures secure and unalterable records, reducing the risk of fraud and promoting trust in financial transactions.
• Cloud-based solutions: The shift towards cloud-based cost tracking solutions is growing, offering scalability, accessibility, and collaborative capabilities that empower remote teams to track and manage costs from anywhere.
• Mobile cost tracking apps: The development of mobile applications allows on-the-go access to financial data, enabling project managers and teams to stay informed and make timely decisions using their mobile devices.

How to track project costs and expenses

A comprehensive project plan and budget can be the difference between a project succeeding or failing. Careful budgeting and expense tracking can help avoid project scope creep and enforce time management.

Here are four detailed steps you can take to control your project budgeting. 

1. Find a project cost tracking system

Project resource planning is most efficient when you use project management software and time management tools.

Hubstaff

A project cost management app like Hubstaff can help cost control with reports and forecasting insights. With Hubstaff Desk, your team will never exceed your budget with set work time and budget limit alerts for projects and team members.

Plus, with time tracking software, you can ensure the salary and wages for your project stay on track. Hubstaff allows for tracking time as billable or non-billable hours.

Of course, we’re partial to our software, but it isn’t the only project management option. Hubstaff is just one of many excellent project management tools that can help you budget and plan your projects.

Procore

Procore is a comprehensive project management platform with robust project cost tracking features. Its cost management module allows users to track budgets, commitments, and actual costs in real time. 

Procore enables the creation and tracking of detailed project budgets, providing visibility into planned versus actual costs. Users can manage change orders seamlessly, tracking the impact on costs and ensuring accurate budget adjustments.

The platform integrates with various accounting systems, enhancing data accuracy and eliminating the need for manual data entry.

Oracle Primavera P6

Oracle Primavera P6 is a project portfolio management tool with robust project cost tracking capabilities. Primavera P6 allows for detailed cost planning, enabling users to allocate resources, assign costs to activities, and create comprehensive project budgets.

Primavera P6 includes features for risk analysis, helping project managers identify potential cost impacts and implement mitigation strategies. 

The tool offers customizable reporting features, allowing users to generate detailed cost reports for stakeholders and project teams.

2. Create a realistic project budget

Once you have a system to log and track project expenses, it’s time to create a budget. Start by determining what you need to include in your budget.

Determine project budget items

No two projects are the same, but there are some general expenses you should consider each time you create a project budget.

• Materials and supplies: You should include anything bought for a project in the budget. This includes wood, software, machines, paper for the printer, post-it notes, and even coffee for the breakroom. 

• Labor costs: Include paying your internal and external team into your budget. Don’t forget about overtime or holiday pay.
• Travel: Does your team need to travel to complete a project? If so, you need to calculate the cost of gas or airfare, hotels, and per diem for food.
• Miscellaneous costs: This is where you should factor in variable costs like buying the team lunch, expedited shipping costs, and other fees.

Determine the cost of each of these budget items as accurately as possible and add them to your project management software. 

3. Ensure team member buy-in

You can pick the best project management system in the world, but it is useless if your team isn’t sold on the software you’re using.

If team members don’t understand the importance of tracking budget items and time, your tracking will be ineffective. 

It’s essential to onboard your team to the software you’ll be using and ensure they are committed to using it consistently and correctly. Then, provide online access to each member of your team.

Be clear about who needs to enter budget updates into the software and the time frame to complete the task. Depending on the size of your team, you may need to assign a team member to track expenses and give stakeholders updates on the project’s progress. 

Assigning one team member to track project status and update stakeholders can ensure the project runs smoothly.

4. Automate everything

The crux of our answer to tracking project costs is automating everything. There is no reason for you to be manually tracking your budget in an Excel spreadsheet when project software can make your life easier. 

Benefits of automated tracking 

• Accuracy: Automated tracking eliminates the risk of human error, ensuring that data entries and calculations are consistently accurate providing a reliable foundation for financial analysis.
• Real-time data: Automation offers real-time updates on project expenses, allowing stakeholders to access the most current financial information. This enhances decision-making by providing an accurate snapshot of the project’s financial health.
• Efficiency: Automated tracking significantly reduces the time and effort required for manual data entry and analysis. This efficiency allows project managers to focus more on strategic planning and less on administrative tasks.
• Consistency: Automation ensures consistency in tracking methodologies and data formats across various platforms, facilitating seamless integration with other project management tools and preventing discrepancies in financial reporting.

Tools for Automation

• Zapier: Tools like Zapier can help you integrate your most-used applications to ensure data is in sync and no budget items or information falls through the cracks.  
• Hubstaff: Hubstaff is a comprehensive workforce management tool with advanced automation features. It streamlines tasks like timekeeping, expense tracking, and invoicing, enhancing efficiency in project management.
• Jira: Jira is a widely used project management tool with impressive automation capabilities. It allows teams to automate repetitive tasks, streamline workflows, and ensure consistent project tracking.
• Trello: Trello is a popular project management tool that enables automation through Power-Ups. These Power-Ups enable users to automate certain actions, making task management more efficient and reducing manual effort in project tracking.
• The crux of our answer to tracking project costs is automating everything. There is no reason for you to be manually tracking your budget in an Excel spreadsheet when project software can make your life easier. 
• Benefits of automated tracking 
• Accuracy: Automated tracking eliminates the risk of human error, ensuring that data entries and calculations are consistently accurate providing a reliable foundation for financial analysis.
• Real-time data: Automation offers real-time updates on project expenses, allowing stakeholders to access the most current financial information. This enhances decision-making by providing an accurate snapshot of the project’s financial health.
• Consistency: Automation ensures consistency in tracking methodologies and data formats across various platforms, facilitating seamless integration with other project management tools and preventing discrepancies in financial reporting.
• Tools for Automation
• Zapier: Tools like Zapier can help you integrate your most-used applications to ensure data is in sync and no budget items or information falls through the cracks.  
• Hubstaff: Hubstaff is a comprehensive workforce management tool with advanced automation features. It streamlines tasks like timekeeping, expense tracking, and invoicing, enhancing efficiency in project management.
• Jira: Jira is a widely used project management tool with impressive automation capabilities. It allows teams to automate repetitive tasks, streamline workflows, and ensure consistent project tracking.
• Trello: Trello is a popular project management tool that enables automation through Power-Ups. These Power-Ups enable users to automate certain actions, making task management more efficient and reducing manual effort in project tracking.

Common mistakes in project cost tracking

Embarking on a successful project journey requires navigating the intricate landscape of cost tracking with precision. Let’s explore the common mistakes that are made when tracking project costs. 

Overlooking indirect costs

Overlooking indirect costs can blindside project budgets. These hidden expenses, from administrative overhead to unforeseen charges, demand meticulous attention for a comprehensive financial picture and effective budgeting. 

Implementing a thorough cost categorization system ensures these indirect costs are accounted for, preventing financial surprises.

Misestimating variable expenses

The devil’s in the details, especially regarding variable expenses. Misestimating the ebb and flow of material costs and resource requirements can throw off budget projections, requiring a keen eye for accurate financial planning. 

Regularly reassessing and adjusting projections based on real-time data helps navigate the unpredictable nature of variable expenses.

Ignoring change orders

Change is constant in projects, and ignoring change orders is a recipe for financial turbulence. Failing to track and incorporate these adjustments can result in unforeseen expenses, disrupting budget equilibrium as the project evolves. 

Establishing a systematic process for evaluating and integrating change orders ensures that the budget remains adaptable to the project’s evolving needs.

Inadequate contingency planning

Without adequate contingency reserves, projects sail into stormy waters unprepared. Allocating sufficient buffers ensures resilience in unexpected challenges, preventing additional costs from capsizing the overall budget. 

Regularly reviewing and updating contingency plans based on project dynamics maintains a robust financial safety net.

Poor record-keeping

In the absence of meticulous record-keeping, project finances operate in the dark. Inadequate documentation creates transparency gaps, hindering the ability to track, analyze, and effectively manage project costs, emphasizing the importance of thorough financial records. 

Implementing automated systems for record-keeping streamlines the process, enhancing the accuracy and accessibility of financial data.

Avoiding these common mistakes requires a proactive and detail-oriented approach to project cost tracking, ensuring that every budget aspect is thoroughly assessed and accounted for throughout the project lifecycle.

Frequently asked questions on project cost tracking

What are the best practices for accurately tracking direct and indirect project expenses?

Accurately tracking direct and indirect project expenses involves implementing robust categorization, regular audits, and utilizing a centralized system to capture all costs promptly, ensuring a comprehensive and accurate financial overview.

How can project management software improve the tracking of project costs and budgeting?

Project management software enhances cost tracking and budgeting by providing real-time visibility, automated data entry, and customizable reporting. This streamlines the process, minimizes errors, and facilitates informed decision-making.

What are common mistakes to avoid when tracking project costs, and how can they be mitigated?

To avoid typical cost tracking mistakes, diligently document all expenses, regularly review and adjust the budget, anticipate variable costs, and employ contingency planning. Continuous vigilance and proactive measures are crucial to mitigation.

How does automating the project cost-tracking process benefit overall project management?

Automating the project cost-tracking process streamlines data entry, reduces manual errors, ensures real-time updates, and facilitates quicker decision-making. Overall, automation enhances efficiency and accuracy in project management.

Start tracking your project costs 

Streamline budgets with a project management tool.

With helpful software, budgeting can be straightforward. Automation can save you time and prevent user error. Now, you can get to work while your tools monitor project spending in real-time.

---

Subscribe to the Hubstaff blog for more posts like this