Five Project Cost Fields to Keep on Budget

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Project costing can be one of the activities that can easily run away from you if not managed and controlled well. It is one of those areas that can be tough as you are dealing with assumptions to ensure your project will stay in budget and it is something that can get complicated for large projects. For this article I will talk about five common fields you should track (for each Expense item) to ensure the costs do not overwhelm your project. The fields are Budgeted Amount, Actual Cost, Cost to Completion, Cost at Completion, and Variance to Budget.

1. Budgeted Amount
This is the amount approved by the board and/or sponsor and is the number your finance group tracks to. The amount is usually locked down in the first phase of your project and the baseline to track your expenses. The amount should stay static unless there is a significant change in scope/direction of the project where you need to create a new budget. As an example we will say you need 5 servers and have estimated the cost to be $20k per server.

Budget Amount for Expense: $100k (Estimated $20k per server for 5 servers)

2. Actual Cost (AC)
Also called Spent to Date. This is the total amount you have spent to date as the project progresses. I will also call this the amount committed to date. For example, once you create the PO, or sign a contract, for 5 servers you have now committed that amount and will not be able to spend it somewhere else. As an example you have purchased 3 of the 5 servers you needed and the cost came out to $45k ($15k per server).

Budget Amount for Expense: $100k (Estimated $20k per server for 5 servers)
Actual Cost: $45k ($15k per server for 3 servers purchased to date)

3. Estimated To Completion (ETC)
Also called Remaining Estimate. This is what you believe still needs to be spent on the project at the current moment in the project. For example, in your approved budget you estimated that you needed 5 servers at a cost of $20k per server ($100k total expense). You purchased 3 of the servers and it ended up only costing $15k per server so you estimate that the remaining 2 servers will cost $30k ($15k per server).

Budget Amount for Expense: $100k (Estimated $20k per server for 5 servers)
Actual Cost: $45k ($15k per server for 3 servers purchased to date)
Estimated To Completion: $30k ($15k per server for 2 remaining servers)

4. Estimated At Completion (EAC)
Also called Forecast. This is the total of the Actual Cost and Estimated To Completion (AC + ETC). Using the example of the servers you have spent $45k and believe you will be spending $30k more for the remaining 2 servers.

Budget Amount for Expense: $100k (Estimated $20k per server for 5 servers)
Actual Cost: $45k ($15k per server was actually spent for 3 servers purchased so far)
Estimated To Completion: $30k ($15k per server is the new estimated cost for the 2 remaining servers)
Estimated At Completion: $75k ($45k + $30k)

5. Variance to Budget (Budgeted vs Forecast)
This is the difference between the Approved Budget and your revised budget (Estimated At Completion)

Budget Amount for Expense: $100k (Estimated $20k per server for 5 servers)
Actual Cost: $45k ($15k per server was actually spent for 3 servers purchased so far)
Estimated To Completion: $30k ($15k per server is the new estimated cost for the 2 remaining servers)
Estimated At Completion: $75k ($45k + $30k)
Variance to Budget: $25k ($100k - $75k)

There you have it, the five fields to manage costs and your budget. Getting your arms around  cost management and forecasting can take a little while to get the hang of, but necessary when you are on a strict budget.

2 thoughts on “Five Project Cost Fields to Keep on Budget

    1. Alvin Post author

      I have used PPM tools, SharePoint, and (at minimum) a spreadsheet for tracking expenses. I do apply the same tracking for both expenses and capital though I do group them separately. And I track to the total amount approved regardless of fiscal year on one spreadsheet. I still need to break the amounts out by fiscal year (for finance) and sometimes approvals are only for the fiscal year so an additional budget approval is required for longer projects.

      Reply

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