Depending upon the project/business environment, one or more of the following three reasons may underlie the mandate to track actual costs and resource usage on a project:
- The financial accounting system and/or the managerial accounting system of the project organization may require the complete and accurate documentation of the ultimate actual cost of the project. This is especially true if the organization must report that actual cost to some outside organization(s), such as:
- The Internal Revenue Service to justify tax write-offs
- An external project customer to justify project fees
In other cases, management of the project organization may simply want the
capability to measure the cost of executing a strategic initiative or the profitability of a project performed for an outside customer.
- Having knowledge of actuals-to-date is a requirement for effective cost control while the project is ongoing. When estimated project costs are budgeted by activity and actual costs are tracked by activity, the project manager has a powerful tool to support his/her efforts to control costs on the project. At any given point in the project, the actual cost of the activities completed-to-date can be compared against the budgeted cost of those activities, so that the cost variance from budget is known continuously. Corrective actions can then be taken to reduce any negative (i.e., over budget) variance. In addition, the budgeted costs (or revised estimated costs) for the remaining activities can be added to the actual cost of the completed activities to develop a new estimate of the total project cost at completion.
- Tracking actuals allows the organization to build a historical database that will
support budgeting and resource planning on future projects. Such a database is
especially valuable if the organization performs many projects that are very similar to each other.
Tracking actual costs and resource usage is not necessary for every project or in every project environment. However, when good reasons exist for tracking actuals, the necessary technical and procedural steps must be implemented to ensure that the process is executed on an accurate and timely basis.
Thomas B. (Tom) Clark, Ph.D, is Co-founder and former Executive Vice President of Project Success Inc. Tom is heavily involved in the development and delivery of PSI’s courses. In addition to his work with PSI, he is Professor Emeritus of Management at Georgia State University. He also served the University as Chair of the Department of Management and as Interim Dean of the College of Business Administration. Previously, he was an Assistant Professor of Industrial and Systems Engineering at Georgia Tech.
Tom has provided project management consulting and training services for a variety of
business, government, and non-profit organizations. For more information contact firstname.lastname@example.org or visit www.projectsuccess.com.