Project budget tracking: Control expenses and promote financial success
A project’s budget is about more than dollars and cents; it’s an organization’s financial commitment to a strategic goal. Budgeting reviews multiple projects to determine which are feasible, best support company priorities, and constitute a wise use of resources.
As a project manager, you must honor that commitment by producing the required outcomes with the funds provided. It’s a big job. Thankfully, you have tools at your disposal to meet stakeholders’ financial expectations. The most effective of these solutions is a robust project budget tracking process.
Here’s what you need to know about managing project budgets and tracking expenses to deliver a successful project.
What is project budget tracking?
Budget tracking is a technique that monitors spending associated with a project, including:
Labor
Materials
Equipment
Operating costs
By tracking and controlling expenses, project management can determine:
How to spread costs across project milestones
The accuracy of cost estimates
How to effectively allocate resources
Whether the team risks overspending the budget
The best way to reallocate funds if there’s a shortfall
Why is project budget tracking important?
Project success is often measured by whether the team delivered the required outcomes within budget. However, that isn’t the only reason project managers track expenses.
An effective budget-tracking process is essential for the following reasons:
Controls costs: Budget tracking identifies cost overruns before they affect the bottom line, allowing leadership to implement corrective measures to get the project back on track.
Builds trust: Accurate budget tracking demonstrates fiscal responsibility, improving confidence and encouraging collaboration among project team members, stakeholders, and investors.
Informs decision-making: With a precise understanding of where the money’s going, leaders can make informed choices regarding resource allocation and risk management while meeting project goals and optimizing outcomes.
Increased accuracy: Leveraging historical financial data allows companies to improve the accuracy of their budget estimates, ensuring future projects receive adequate resources.
Improved efficiency: Budget management helps identify inefficiencies within project workflows. Resolving these will produce cost savings and improve team productivity.
5 project management budgeting methods
Workflows are complex and vary between organizations. There is no single project budget template that works for all initiatives. Instead, companies leverage one of many frameworks when calculating a budget.
No budget template is inherently better than another. The most suitable methodology depends on organizational operations, project type, and availability of historical or industry data.
Here are some of the most common project budgeting techniques:
Bottom-up estimation
Budget planning from the bottom up asks contributing departments to assess project plan components and generate cost estimates for each. Once complete, the team combines the value of each item to calculate the .
Top-down allocation
When stakeholders allocate a predetermined amount to a project, leadership divides and allocates a portion of the funds to various tasks. In the process, they consider the following factors:
Cost of previous projects
Past budgets
Project priorities
Current economic conditions
Anticipated future trends
Three-point estimate
A three-point budget estimate is helpful for projects with considerable risk. It assesses best- and worst-case possibilities alongside the most likely scenario to generate each task estimate. The team bases its final estimate on the reconciliation of those three numbers.
Parametric estimate
If the project team has industry data and fiscal reports from similar projects, they can use a parametric estimate to calculate the budget. As with bottom-up estimates, the technique breaks the project plan into components, uses third-party and historical data to generate costs for each task, and then combines the values into a final budget.
Example: Previously, a single network engineer took 4 days to lay 100m of fiber optic cable at a rate of $100/day, totaling $400 for the entire project. To install 1000m of cable, the project team requires 2 engineers to work for 20 days. Here’s how cost is estimated:
Cable laid per day per person (CDP) | Total amount of cable / Project days 100m / 4 days 25m |
Number of project days | Total amount of cable / (CDP X team size) 1000m / (25m X 2) 20 days |
Final cost | Number of days X Team Size X Daily rate 20 days X 2 X $100 $4000 |
Analogous estimate
Project managers generate analogous estimates based on the cost of similar projects. If past projects are fully comparable, this methodology is fast and accurate, but the final estimate won’t be reliable if there are significant discrepancies.
Elements of project budget tracking
Consider the following factors when developing a protocol to track project budgets and .
Expenses
Any expenditure that funds a project’s deliverables falls into one of two expense categories:
Fixed costs: Spending that remains consistent throughout the project lifecycle.
Variable cost: Fees that change depending on the project phase or activity, such as piece-rate labor, utilities, and distribution costs.
Differentiating between these expenses is critical. Variable costs can lead to overspending that exhausts financial resources if not controlled, especially if the project faces scope creep or runs past the deadline.
Income
Income is the funding a project team receives at the outset of work. There are three types of project income.
Zero income: Internal projects receive zero income from the company, so there are no financial inputs to track.
Fixed income: Project funding sometimes arrives as a lump sum payment at the outset of work or is distributed over the lifecycle in regular installments. Typically, the sum equals the price quoted to the client during the bidding process.
Cost-plus income: A cost-plus income project is pay-as-you-go for clients, supplementing the initial fixed funding amount as costs are incurred. Management uses this funding model when establishing an accurate project estimate poses a significant challenge.
How to perform project budget tracking
Once the team completes the budgeting process, the project manager can continuously monitor spending. Here’s how:
1. Establish a tracking protocol
First, determine how you plan to . Whether using pen and paper, spreadsheets, or project management software, the system must monitor who’s spending money and how much. Accurate record-keeping ensures stakeholders receive dependable reports on budget usage.
2. Provide access
Team members need access to the monitoring system to provide regular expenditure updates. This feature is where project management software has an advantage over other tools. Team members can routinely access and update the project budget online regardless of their location, improving transparency and accountability.
3. Identify budget items to track
Determine required tasks during the budgeting process, then allocate the estimated costs. Listing expenses to monitor ensures precise and accurate tracking. Be sure to record which expenses are fixed or variable costs.
4. Track and control spending
Finally, track expenditures by establishing alerts to notify project management whenever the team incurs an expense or encounters spending irregularities and when project costs trend toward exceeding the budget. Project management software often includes a system to monitor expenses and integrates with bank accounts to prevent overspending.
Project budget tracking with Financial Manager
Tempo’s Financial Manager application has everything you need to track project spending. The solution allows you to monitor a single budget value or multiple budget milestones across a project’s timeframe.
With the Financial Manager solution, project managers can perform the following functions:
Create projects
Establish budgets
Update project budgets at any point during the project lifecycle
Include budget milestones
Monitor progress according to revenue used and accumulated costs
Start tracking your project budgets with Financial Manager
Tracking and managing budgets is a crucial project management task that can become overwhelming without the right tools. At Tempo, we understand. That’s why we’ve created to integrate seamlessly into your Jira tech stack.
Financial Manager allows you to track and report actual spending compared to estimated budgets directly from your dashboard. With real-time data and visualizations that eliminate guesswork, decisions will reflect the situation on the ground, improving the likelihood of project success.
