Perhaps you’ve had those moments when you’re pulling together some budget information, and crunching some numbers from lots of Excel spreadsheets and emails, and your palms start to get a little sweaty. Which project costs did you miss? It’s been a while since you’ve gotten a progress report from the team – are there any unexpected costs that are going to sneak up on you?
If it seems like you’re always dealing with unexpected project costs, we’ve got four tips to help you forecast your project costs more accurately upfront, and keep them in check as your project moves along.
1. Map Costs to your Work Breakdown Structure
To get the most accurate representation of expected project costs, take the time to create a detailed work breakdown structure. When you’re working with clients, you should do this before presenting it to them with the cost of the project. It’s so tempting to provide a wild guess on the project scope and fees, but watch out! The client will remember that number, and then you’re stuck with it.
Identifying costs line-by-line with your work breakdown means you’re less likely to overlook something. The software implementation task – that might require procuring some new licenses. Or the latest website update for your upcoming event – are you getting a vendor? What about travel costs for on-site client visits? The more detail you build into your project plan upfront, the more likely you are to identify the associated costs and ensure an accurate cost estimate.
If you’re building your work breakdown structure in LiquidPlanner, use built-in features like Billing Rules and Pay Rules to auto-calculate the labor costs of each task. And the Expenses feature can capture billable and non-billable expenses for each job, which rolls up to your project reports and dashboards.
2. Peer Review
Maybe you thought your peer review days were over since high school. Well, consider the benefits of having a peer review the project costs estimates you’ve outlined in your scope of work. You could have another Project Manager or person on your Finance team to review your cost estimates. They may notice something you’ve overlooked. Or perhaps they’ve worked on a similar project in the past, and they know about some expenses that you weren’t aware of. This small step can make a big difference in ensuring an accurate estimate.
3. Monitor & Communicate
Once your project is underway, you’ll want to establish a rhythm for monitoring project costs. You can set up a Project Dashboard or Analytics Report that will dynamically update as your project team logs time to their tasks. These reports can also help you monitor when estimates are changing and how that impacts your labor costs. Use reports like the Total Trend report to visually monitor if your expected effort is trending in the right direction. If you’re tracking billable time for your clients, you can use auto-calculated fields such as Delta Bill vs. Pay to monitor whether your billable costs exceed or fall below payroll costs.
In addition to having the right reports to monitor your costs, make sure to review and communicate project costs in regular status meetings with your project team and stakeholders. Use your check-in meetings to discuss tasks that might be subject to scope creep, or change requests that the team has been fielding. As a project manager, your project team will look for your guidance to navigate and negotiate what can be done to maintain the quality of deliverables while balancing scope, schedule, and cost. When cost issues arise, transparency with your project team can help to resolve problems quickly.
4. Review & Learn
The part of a project that often gets skipped or avoided is closing out the project, even though there are many benefits to making sure this is completed as part of your project lifecycle. Part of the project closure process involves recognizing the actual expenses and labor costs that were incurred upon completion of the project, and seeing how that lined up with initially approved projections from your Statement of Work.
Reflecting upon this information is beneficial in two ways:
- Recognize what went well. What areas of project costs stayed in line with original projections? What contributed to that success? Make sure to document it, celebrate it with the project team, and repeat it the next time.
- Identify and document what drove costs higher than expected. Perhaps a licensing cost was overlooked, or the time it took to meet compliance requirements was underestimated. Going through the process of Project Closure is an excellent opportunity to document lessons learned and make sure that you improve for the next time. We all want to achieve better results each time, right?!
No matter where you are in your project lifecycle, consider what opportunities you have to review in your project plan for accurate cost estimates. You can use dashboards or reports to monitor scope and costs with your project team, and formally review your project outcomes for continuous learning and improvement of future cost estimates.
If you want to learn more, here is our webinar recording on Tracking Your Project Costs: