Project Expense Tracking: Definition, Benefits and Steps
Updated February 3, 2023
During a project, companies often incur various costs from different sources. Tracking these expenses throughout the duration of a project can offer insight into how much the project costs and how well it has adhered to its budget. Learning about recording and analyzing these expenses can help you prepare for future projects and adapt to any changes during a project.
In this article, we discuss what project expense tracking is, why it's important and steps you can take to track expenses for a project effectively.
What is project expense tracking?
Project expense tracking is how businesses monitor the costs of projects. For different initiatives, like changing processes, developing new products and creating a new marketing campaign, each might have a project manager to oversee the schedules and budgets. With expense tracking, managers can see how much they spend on items like:
Labor: Labor can include both internal wages and external labor. You might gather labor data from timesheets or spreadsheets where team members working on a project submit.
Materials: This can be raw materials like wood or plastic in construction or required tools. Materials are typically variable costs since they can change depending on the market.
Project travel: Sometimes, your project might require you to travel. You might keep receipts to track travel expenses like airfare, hotel costs or visa fees.
Utilities: This can include the expenses for facilities you might use for a project. You might track these by recording amounts from invoices for services like air conditioning, heating or water.
Capital expenditures: Capital expenditures are investments you might need to make for a project, like machines or other equipment. Consider tracking investment depreciation as an expense.
Project expense tracking benefits
There are several important reasons businesses use project expense tracking. Here are some benefits to using expense tracking for your projects:
Ability to monitor costs incrementally: Tracking expenses throughout a project provides you the ability to view various expense categories and time periods. This can help you understand how much money you can spend for the rest of the project while staying within your budget.
Allows for budgeting on future projects: If you record your expenses for a project, you can use that information to budget for similar future projects. For example, if you license software to complete a project, you can include that budget if you need to use that software for other initiatives.
Improved decision-making: By tracking your expenses, you can make more informed decisions than if you didn't know how much you spent. You might spend additional money on resources to keep a project on schedule, but if you knew these expenses might make the project over budget, you could explore other options.
Reimbursed staff: Sometimes, employees may pay for certain expenses while working on a project. By tracking these costs throughout a project, you can identify what costs to repay.
Organized expense tax information: Many companies may itemize their expenses for tax purposes. By tracking these line items throughout a project, it can be easier to organize and prepare your business records for taxes and audits.
How to track project expenses
Here are several steps you can take to track project expenses:
1. Create a budget
Establishing a project budget before you begin your project can help you expect expenses and realize what items you’re interested in tracking. Business managers and stakeholders may provide you with the amount they're willing to spend for overall budgets.
With this, you can allocate costs to different parts of the project, like wages and materials. You might review the expenses and schedules of previous projects to help you accurately estimate what you might spend.
Consider including fixed and variable costs so that you can prepare for expenses that are unlikely to change and those that might change throughout a project. Once you set a budget, review it with management if you need their approval.
2. Establish your systems and processes
When tracking project expenses, establishing your systems, tools and processes can help you create a plan. Consider creating a project expense tracking spreadsheet where you might input all of your costs. Use your budget as a guide. The spreadsheet might include the planned expenses for specific periods, like weekly or monthly.
Try including a space for actual costs that you can include throughout the project to track what you spend and compare it to your budget. There are also software and online programs you can use where various team members may be able to input their costs.
Determining processes here can help ensure all team members input their costs regularly. You might consider a schedule for teams. For example, you can suggest that every team member inputs expenses on a Friday so that you can review them every Monday. Establishing processes early helps ensure everyone understands their role and the importance of expense tracking.
3. Verify expense information sources
There are often several ways you can gather expense information. You might use a combination of these sources to maintain accurate expense records. You can collect information from sources like:
Determining the different sources where you might gather expense information can help ensure you timely record every cost accurately. If various people input costs, try to ensure they all have access to the same expense-tracking spreadsheet or systems you plan to use.
If this can be challenging, you may ask one person on the project to gather and calculate costs for each determined time period. Keep physical copies of your expense documents so you can show evidence of the costs if you’re audited or if you want to review your records.
4. Establish who tracks expenses
It can be helpful to allocate one specific person to track the expenses throughout the project. Doing this can ensure consistent reporting and allows management to work with one person who oversees the expense information. This might be the project manager, bookkeeper, administrative coordinator or another dedicated member of the team.
The expense tracker might create visuals, like graphs, to evaluate current spending and projections to ensure the project is within the budget. They might implement a method for notifying the project manager or other team members if expenses are higher than expected and the costs might exceed the budget.
5. Analyze costs regularly
Using the spreadsheet or software, it's important to analyze the costs regularly to minimize the possibility of exceeding a budget. Consider determining a schedule where the project manager can review the data gathered. You might review the planned figures against the actual figures to see if there is any variance.
Reviewing this data frequently can ensure you handle any problems quickly. For example, if one week the cost of materials exceeded your budget, you might reduce the hours for people to work the following week to balance the budget.
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