Project Management Budget Tracking: A PMO Leader’s Guide

Project cost is a vital component in project management. Yet, only 34% of organizations mostly or always complete projects on budget. 

Project management office (PMO) leaders know all too well what happens with the rest. They have seen project budgets derail for many reasons, from scope creep to resource misallocation to inaccurate estimates. That’s why leaders are more keen than ever to track and manage project budgets.

Good project budget management starts with understanding the project scope. Next comes the art of monitoring actual costs against the baseline. Finally, planning different budget forecasts helps leaders prepare for changing project requirements. 

Farshid Adavi, a project manager and planner, agrees, “You must have specific unit and parametric costs for all project items and activities to experience fewer uncertainties.” Adavi observes that project agents will likely suffer without a coordinated project cost control system with rules and guidelines. Project budget tracking helps project leaders avoid this suffering. 

With budget tracking exercises, they can prepare financial risk-mitigating strategies to tackle budget shortfalls and overruns. 

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What is project management budget tracking?

Project management budget tracking is the process of monitoring and comparing actual project costs against the allocated or projected budget. It helps project leaders course-correct in case of over-budget projects and offset those additional costs with time and scope optimization. 

Ultimately, PMO leaders aim to achieve zero overspending while minimizing project risks. 

Proactive project budget tracking helps them accomplish it by continuously monitoring a project’s financial parameters. 

How does tracking project management budget help?

Project budget tracking empowers PMO leaders to monitor project costs, one of the critical project success KPIs. Tracking helps PMO professionals optimize resources, have better financial control, and deliver within scope, time, and budget. 

Other benefits include:

• Scope creep detection. Additional work outside the project scope results in unplanned expenses. Consider comparing those extra tasks against the project deliverables. This will help detect the source of additional costs. This scope creep detection prevents budget overruns and ensures efficient resource use. 
• Easy course correction. Monitoring costs allows project teams to adopt corrective actions and offset costs to other project areas in case of overspending.
• Improved stakeholder confidence. A budget tracking report offers stakeholders a sneak peek into the project's financial health and spending. Besides showing transparency, it demonstrates the project team's accountability to stakeholders.
• Informs future budgeting. Budget monitoring enables leaders to analyze project expenses and establish cost benchmarks for similar projects in the future. 

Here’s an example for more clarity. 

A large construction company received a multimillion-dollar project with a tight budget. They created a detailed project budget and analyzed financial performance every week. In addition, they assigned a cost controller to monitor daily project expenses. This strategic financial management helped the company complete the project 5% under the original budget and save millions. 

Had they not done this financial vigilance to track project costs, they would not have been able to complete the project within the allocated budget. Can various project management tools, time-tracking systems, and expense-tracking solutions deliver impressive results like this? 

These tools align teams toward a shared goal. Corporate meeting AI assistants like Reelay go a step above to help leaders hold teams accountable to what they have aligned on. Reelay accelerates problem-solving by allowing project managers to collaborate with IT teams and leadership throughout the project lifecycle. 

Reelay allows stakeholders to focus on project discussions instead of taking meeting minutes. When they’re blocked by other meetings, or there’s a meeting conflict, they can send Reelay to meetings on their behalf. The meeting assistant compiles meeting minutes, action items, topics, and questions discussed. Stakeholders can later review and share this information with team members and assign tasks to improve accountability practices. 

Here’s an example of a meeting minutes update from Reelay:

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Project budget tracking components

Income and expenses are two critical elements of project budget tracking. Income refers to the revenue an organization generates from working on a project, while expenses are a company's direct and indirect costs to execute the project. 

Income

Income is the total amount a company receives from a customer to complete the project deliverables. It includes all sources of funds an organization gets for rendering services and achieving project milestones. 

Three types of project income are:

• Zero income means a project doesn’t generate revenue or receive external financial resources. This usually happens when a company works on internal projects or pro bono for non-profits. 
• Fixed income refers to a company's fixed payment for executing a project, either as a lump sum or in installments. Fixed-income projects offer a stable financial foundation since project owners pay the price regardless of varying factors. 
• Cost-plus income occurs when project teams earn an additional profit in addition to the fixed project costs. These projects allow greater scope flexibility because they cover expenses as they incur them. 

Expenses

Project expenses refer to all the costs clients pay project teams for planning and executing projects. 

Projects typically accumulate two types of expenses: fixed and variable.

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Source: Business.com

• Fixed costs are expenses that don’t change with project duration or scope. Examples include wages, equipment costs, and administrative expenses. 
• Variable costs fluctuate depending on the project scope and activities. Examples include labor costs, material costs, and utility expenses. 

What else to add to the project budget

PMO teams also add the following elements to project budgets to track every cost associated with project delivery. 

• Material costs refer to the cost of raw materials, software tools, and rented equipment that a project team uses to deliver a project.
• Travel costs include expenses incurred when a project team travels for project-related work. 
• Labor costs include hourly wages, salaries, healthcare benefits, and payroll taxes.
• Professional services costs are third-party consultant fees project teams pay to obtain expertise on issues beyond their knowledge. 

Tracking all these costs is no easy feat, but it becomes easier when project managers set pre-defined parameters and follow a workflow to monitor every expense continuously.

Six steps to track project management budget 

Systems are essential for tracking day-to-day activities, and project management is no exception. 

Complex projects typically have many moving parts. To manage them, PMO leaders overseeing project budgets prefer creating systems. These systems allow them to categorize costs and monitor expenses effortlessly.

Here’s how they go about it: 

1. Establish cost tracking systems

Start by finding a tool to track project expenses against the predetermined budget. This tool can be a dynamic project management system or spreadsheet. 

Some leaders avoid spreadsheets due to the risk of data entry errors and formula issues. In fact, 31% of finance leaders see unsaved spreadsheets and lost documents as the most significant risk in their role. 

Project management software takes away all that worry. These tools make tracking time, project status, and financials easy with pre-built dashboards. Consider choosing tools with remote accessibility so project teams can easily add, track, and manage expenses anywhere.

2. List all project activities

Consider breaking projects into phases and activities to understand the expected expenses for each subtask better. This will help project teams efficiently budget for the time and cost of each project deliverable.

This project breakdown is necessary as it helps leaders with:

• Efficient resource allocation during each project phase.
• Accurate cost estimation for projects that compensate teams based on milestones. 
• Improved accountability, which is vital for meeting project deadlines.
• Risk management to avoid high-risk project activities and related financial repercussions.
  

3. Identify and categorize project budget items

Project resources and budgets differ depending on the industry and project scope. Tracking these variables is key to estimating the project cost. For example, real estate projects require PMO leaders to spend on equipment, materials, legal consultation, and travel. Managers must identify and list these expenses to track them throughout the project lifecycle.  

4. Create a project budget

This step involves consolidating all budget items to create the project budget. During this phase, project managers must consider all expenses, including time-based, fixed, variable, and flat-fee expenses. 

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Sample project budget

Source: ResourceGuru

Here are some of the best practices project managers follow while creating budgets.

• Use historical data of similar projects before creating a project budget.
• Refer to past project mistakes to develop accurate budget estimates. 
• Discuss the budget with project leads and field experts to avoid costly mistakes later.
• Use a project budget proposal template to review the accuracy of a budget.
• Rely on a baseline to measure progress and re-baseline when the project changes.
• Track project updates in real time using a project management tool to course-correct project deviations.

The best part of creating a project budget is that it allows the project team to set various expense parameters, which stakeholders can track to make informed decisions.

5. Assign expense tracking ownership

Project cost tracking becomes easier when dedicated financial controllers record and monitor spending against the budget. 

Owning the expense tracking process allows them to detect cost overruns and inform the PMO leadership of corrective measures such as:

• Setting up expense approval workflows
• Flag cost drivers with expenditure trend analysis
• Pinpoint potential budget overruns based on current and historical spending data
• Project scope and cost renegotiation

6. Control expenses in real time

Project budget management goes beyond appointing a financial controller. Project leaders must adopt proactive measures, such as using project controls to monitor budgets. 

Project controls help them analyze project cost and status, enabling easy outcome forecasting and improved project performance. Project controllers monitor project data, identify potential delays, and communicate with stakeholders to ensure the project stays on schedule. 

Project expense tracking templates

Here are a few handpicked templates to help project management teams track expenses and deliver projects on budget.

• A project estimate template helps outline costs, resources, and time a team needs to complete a project. Stakeholders use it to understand the financial and resource commitments necessary for project completion. 
•  A project dashboard template visually conveys key metrics and performance indicators. Project teams rely on this template to track resource management, project progress, and financial data from a single dashboard.
• A project task tracker template makes it easy for project owners to delegate tasks and prioritize action items. It’s a living, breathing document project managers use to meet project goals on time.

Five tips for better tracking project management budget

The main reason for tracking the project management budget is to avoid asking clients for additional funds to deliver the project on time. Follow the best practices below to keep the project within budget and ensure on-time completion. 

1. Conduct frequent project budget reviews

A small budget overrun is always better than a major budget crisis at the end of a project. That’s why reviewing the project budget at regular intervals is necessary. 

Project leaders can use Reelay to gather feedback from project members without the hassle of taking notes during these budget meetings. The meeting minutes reports convert every meeting into an easy-to-grasp synopsis with topics, questions, answers, highlights, and actions. 

Plus, project leaders can assign tasks to members directly from the meeting notes.

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Reelay’s AI meeting assistant integrates calendars and video conferencing apps like Zoom, Google Meet, Microsoft Teams, and Webex, making the project team's job easier.

2. Add contingency funds

Jason Westland, CEO of ProjectManager.com, believes that project managers must “add in contingency funds, especially when they haven’t done this type of project before, or it is particularly risky.” 

Some parts of the project may be riskier than others. Project leaders decide whether to add contingency funds to the overall budget or specific phases.

3. Share goals, KPIs, and milestones

Before a project begins, PMO leaders must share the project scope, KPIs, milestones, goals, and budget with the team. 

When everyone has a shared goal and direction, navigating project constraints and meeting the project schedule becomes more effortless. 

4. Update the forecast

Certain activities may cost more during the project, or resources may become unavailable mid-project. In such scenarios, project leaders must update the estimates to understand the effect of those changes on the project. 

Stakeholders must be informed about such changes, especially when offsetting budget overruns in other project areas.

5. Be transparent in communication

Communicating project budget tracking-related activities prevents project team members from adding non-project hours to the billable. As a result, the project team is more credible to the client. 

Project budget tracking isn't just a box to check. It’s a continuous process, allowing project leaders to:

• Keep projects within the approved budget.
• Manage resources efficiently.
• Make informed decisions based on current and historical data.
• Collaborate with engineering, leadership, and other teams to drive project success. 

Collaboration can make or break a project 

When done right, it drives everyone in the same direction with purpose and ownership. If you’re tired of spending 2-3 hours daily managing collaborative tasks, you’ll love Reelay. 

‍Sign up for a demo to see how we help project leaders collaborate with teams and inspire accountability for project success.