Project financial management

Track project cost with real-time precision

One question is guaranteed to ratchet up a project manager’s blood pressure: “Where’s all that money going?”

Tracking project costs provides crucial financial data that facilitates budget management – a key contributor to success. Whether you work in construction, IT, or marketing, tracking expenses is an essential process that ensures effective cost management, helps the team avoid overspending the project budget, and maximizes the company’s return on investment.

Rigorous cost-tracking protocols help project managers generate financial health reports with minimal discomfort. If that isn’t your experience, don’t worry. We’ll explain everything you need to know about tracking a project team’s expenditures and explore financial management tools that will help you breathe easier. 

What is project cost reporting?

Cost reporting is a record-keeping protocol that provides insight into how the team spends the project budget, helping stakeholders analyze incurred expenses. When done right, it prevents cost overruns and maximizes the company’s return on investment.

Cost reporting is an intensive process that involves more than simply logging expenses. As custodians of the budget, management must include the following components in their reports:  

Budget management

Effective cost reporting requires a robust budget based on a detailed understanding of the project’s scope and required resources. The budget must include the estimated cost of each project expense, including the following:

• Labor

• Materials

• Equipment

• Indirect expenses

The budget acts as a baseline so managers can gauge actual expenditures against the , providing visibility into its financial health. 

Cost tracking

Once project management establishes the budget, they should track costs as they occur. Leaders document every expenditure using a digital software application, like Tempo’s . The data illustrates spending trends, showing where money is going, whether expenditures align with budget projections, and if any areas are over or underfunded. 

Real-time analytics

Routine spending analysis using real-time data helps project managers identify spending trends and understand cost-driving factors. This information informs financial planning and decision-making, ensuring the project meets budget expectations. 

Expenditure trend analysis also allows management to assess and the accuracy of cost predictions.

Change management

Project plan updates are common, but they can wreak havoc without proper management. Changes may increase expected spending rates or add unforeseen expenses to the budget. Integrating a change management protocol with cost tracking ensures stakeholders document and approve any scope, timeline, or material adjustments and understand the budgetary impacts.

Historical analysis

When budgeting a new project, historical data from previous work acts as a reference point, improving the accuracy of the estimation process. Management and stakeholders are better informed, ensuring they properly allocate resources and save time and money. 

Why is project cost reporting important?

Cost tracking maintains a project’s fiscal well-being by illustrating how leadership has allocated money and identifying currently available funds. The practice ensures effective financial management, revealing which activities require additional investment and where too much is being spent. Project cost reporting also provides historical data to improve the accuracy of future cost estimations and project bids.

Another key benefit of a rigorous budget oversight process is informed decision-making. If a project’s scope changes or something goes wrong, project management can address these issues within the existing financial framework while ensuring the work continues to meet operational objectives.

Types of costs

Project managers typically divide budget costs into six types. Some expenses fall into multiple categories.

1. Direct costs

A direct cost is any expenditure tied to developing the actual outcomes of the project. These include:

• Materials

• Salaries and wages 

• Hardware and software purchases

• Training expenses 

• Equipment rentals

• Contracted labor costs

2. Indirect costs

Indirect costs don’t directly produce the deliverable but are necessary to complete the project. They may include:

• Project management fees

• Administrative overhead

• IT infrastructure costs

• Cybersecurity fees

• Insurance

3. Fixed costs

A fixed cost is an expense that remains constant throughout the project lifecycle, regardless of scale or duration. Here are some examples:

• Rent or mortgage payments on office space

• Lease payments for equipment

• Annual software license fees

• Equipment or infrastructure depreciation

• Full-time staff salaries 

4. Variable costs

Variable costs change based on the project’s stage or activity level.

• Hourly wages for subcontractors or temporary staff

• Usage-based fees 

• Fluctuating costs for services or materials like shipping, utilities, and commissions

• Bank and credit card fees

5. One-time costs

Projects incur initial cash and non-cash costs that only need to be paid once.

• Initial setup and implementation costs

• Infrastructure costs

• Consulting fees and permits

• Contract renewals

• Severance pay

6. Recurring costs

Any expense charged according to a regular cycle is considered a recurring cost. Typical recurring costs are:

• Monthly subscriptions

• Maintenance and support fees

• Ongoing training 

• Retainers for professional services

• Vehicle leases

Project cost reporting with Financial Manager

Implementing Tempo’s Financial Manager solution allows project managers to establish a realistic project budget and track all resultant costs. The application also offers the following features:

Cost and billing rates

Financial Manager allows companies to customize the following rates:

• Hourly cost rates: Managers refer to a project’s default pay scale as the hourly cost rate, applying it to subcontractors or temporary workers with undefined cost rates.

• Cost rates: A cost rate defines a team member’s hourly wage for work on a specific project.

• Global cost rates: Project team members assigned a specific role often receive a global cost rate wage. Project managers can overwrite these rates at the project level when necessary.

• Flexible cost rates: Project managers can update cost rates for individual team members depending on role assessment or scope changes.

Expenses

Record project expenses and categories by logging them individually in the Financial Manager app. Project managers can also automate recurring expenditures to actualize on days paid, streamlining data entry tasks.

Once users have entered their expenses, they can assess the project’s fiscal standing by reviewing key metrics, such as:

• Cost variance and baseline

• Earned value

• Budget at completion (BAC)

• Resource utilization

• Return on investment (ROI)

Common challenges with cost reporting

Cost reporting may seem straightforward, but there are several common challenges. 

1. Data accuracy and consistency

The biggest cost-reporting challenge is data accuracy and consistency. Data entry errors and miscommunication often lead to recording discrepancies. An automated software solution like Tempo Financial Manager standardizes this process, ensuring consistent record-keeping. Routinely training your project team on the app reduces errors and improves reporting quality. 

2. Balancing scope changes with budget limits

You can establish a clear and structured change management protocol that reviews, approves, and documents alterations to the project plan. Project managers can use this data when drafting cost reports, notifying stakeholders of the added expenses arising from these changes. 

3. Allocating project overhead and other costs

Project managers need a logical, structured process to attribute overhead and indirect costs across multiple projects so they can maintain a realistic view of a project’s actual costs and financial gains. 

Precise allocation of expenditures maintains the profitability of each project while allowing organizations to assess the actual cost and margin for each initiative. This data informs decision-making and improves the organization’s financial health.

4. Forecasting

Accurate cost forecasts are challenging to generate, especially during periods of market volatility. Project managers can avoid unfortunate surprises and enhance estimate accuracy by monitoring market trends and project data when they update projections. Predictive analytics tools included in a financial management application can improve the reliability of cost estimates.

Accurately track your project costs with Tempo

Improve financial reporting by integrating Tempo’s Jira-enabled Financial Manager into your organization’s project management tech stack. 

The application helps project managers manage costs by visualizing current spending and upcoming expenses using real-time financial data. With real-time information, they can easily make informed decisions to optimize resource allocation and maximize profitability.

Financial Manager removes the guesswork when determining a project’s fiscal status. All the data you need is at your fingertips.