A Guide to Project Management Budget Tracking (WIth Tips)

Budgeting is essential to the success of every project. In project management, the budget determines the project's scope, the members involved, the resources required and the strategies or processes to apply to find solutions. Understanding how to track your project management budget efficiently can help your project meet its goals. In this article, we explore what project management budget tracking is, explain its importance, discuss its elements and provide tips for doing it successfully.

What is project management budget tracking?

Project management budget tracking is the monitoring of the amount of money that an organization has already spent on the project and the amount remaining regarding the pre-established budget. In project management, cost, time and scope are the three most important aspects to consider for success. As a project manager, you can account for this cost in the budget, which helps control how much money you allocate to the different features of the project and at what time.

The budget can be tracked to ensure it doesn't exceed the predetermined limits. If the expenses exceed the limit, you can make corrections to ensure the project is on track and within the budget.

Read more: What Is a Budget?

Why is project management budget tracking important?

Tracking project budgets helps to:

• Make necessary corrections after overspending by offsetting costs to other aspects of the project to remain within the budget

• Inform all stakeholders about funds you've allocated and spent for transparency and accountability

• Note areas where there's overspending to investigate if there are challenges in that area

• Stay on track as the budget acts as a key performance indicator to note signs that the project may not be going as planned

• Check any missing details on how you spent the funds

• Create a comprehensive and genuine report or presentation at the end of the project

• Stay within the project scope

• Avoid conflicts during or after the project regarding how you handled the finances or how you billed the client

• Understand where your money is going

• Plan for similar or subsequent related projects

Related: How To Manage a Budget

Elements of project management budget tracking

Consider the following elements of project budget tracking:

Income

Income is the amount of money you may receive from working on a project. There are three types of incomes associated with project management. Zero income is where there's no income to track, which occurs when you're working on an internal project for your employer. Fixed income is the fixed price of the project that the project owner agrees to pay. It may come in installments stretched over time or in one payment. Cost-plus income is where you gain profit in addition to the fixed income. Project managers track cost-plus income in projects where estimating project costs become challenging.

Expenditure

This is the amount of money you use during the life of the project. You can calculate the amount when the project tracks how much money you're using. There are two types of expenses accumulated in projects. These include fixed and variable costs. Fixed costs rarely change. For example, the price of materials used during a construction project may not change as the project progresses. Variable costs vary with activity or time.

Sub-contractor hours and labor hours are examples of variable costs. If you spend more time on a project, the ultimate cost of the project may increase. In budget tracking, it's crucial to monitor variable expenses, as they're the most likely to determine the total expenditure of a project. They can exhaust your resources if not taken care of promptly.

Read more: What To Include in a Budget

How to perform project budget tracking

Developing a budget is the first step toward ensuring a project progresses smoothly within the pre-defined parameters. Tracking the budget and ensuring expenses and incomes are being maintained is the next step. Tracking your project budget is a continuous task that requires you to stay up to date with every purchase or payment made on behalf of the project. Follow these tips to track your project budget:

1. Develop a budget system

The first step to tracking your budget is designing an accurate system that keeps track of all expenses made during the project. The system notes who's spending the money and how much they spend. This way, you can have a dependable idea of where funds are going. You may choose to use project management software with budget tracking tools or a spreadsheet processor to list all expenses.

You may additionally set specific schedules that can remind you to update your system regularly. Most large organizations have fully dedicated applications to track their budget during projects. Medium-sized companies can choose to subscribe to project management tools offered by third parties. If you're working on a small project, you can manually track your budget using a notebook or a mobile phone notes application.

Related: Free Budget Worksheet

2. Provide remote access to the system

A sound budget tracking system may have features of being accessible. This can increase collaboration, especially for off-site or field projects. If multiple teams are handling the project, an online budget tracking system makes cooperation easier. Clients or supervisors may also access the budget track online if they wish to enhance transparency and accountability.

3. Identify budget items and develop the budget

Once you have the system in place, you may list the items you can track in the budget. These items vary according to project or industry. It's vital to detail each item to improve preciseness and accuracy during tracking. Identify which tasks are to be completed and allocate the budget estimate to each task. Examples of tasks include travel expenses, legal costs and material purchases. Create the budget by identifying the fixed and variable costs. Gain the approval for the budget from management or the client, if required.

4. Track and control expenses simultaneously

As the project progresses, you may then track the flow of funds from one point to another. Establish a means of notification to keep you updated whenever there are irregularities, missing details or overspending within the budget tracking system. You can use automated project management software to monitor purchases and integrate the systems into bank accounts to stop the flow of money whenever you exceed the budget amount.

If you cannot track the budget individually, you may assign the task to a team member who can notify you whenever there's an issue with the budget, or keep you informed of the progress. If you're using a spreadsheet application, consider adding the budget to the cloud in case of unexpected events.

Read more: How To Be Effective at Budget Management

Tips for efficient budget tracking in projects

The goal of tracking the budget is to ensure the project is complete at the right time, with the right quality and within the set budget. This way, you can avoid requesting extra funds to complete your project. Tracking the budget during a project is one of the most challenging tasks of a project. Follow these tips for efficient project budget tracking:

• Review the project budget frequently. It's much easier to sort out a 5% budget overrun than fixing a 30% overrun at the end of a month. You can set update meetings with personnel in charge of budgeting or set the project management software you're using to generate weekly reports and notify you automatically.

• Communicate to your team that you're tracking the budget. This helps each project member ensure that nonproject hours aren't billed as part of the project, which may promote your credibility as a contractor, company, employee or manager.

• Define project details early before the project begins. You can define details such as the scope, approach, personnel duties, key performance indicators, milestones, goals and the budget well before you track the budget. This helps you stick to the budget, maintain the project constraints and scope and stick to the project schedule.

• Consistently update the forecast. As you fix overruns and balance the budget, update the project's forecast because changes may arise from a resource that's no longer available, or the material included in the budget previously is no longer needed. Updating the forecast helps you understand the effect certain changes have on the project.

• Inform stakeholders of changes to the budget. Financial reporting is an essential aspect of project reports. Metrics on the budget expenditures are essential to everyone associated with the project, and informing them can help you receive different opinions on how to offset the budget efficiently.