Oops – Where Did The Money Go!
How many of us look at the monthly bank statements or invoices issued as an indicator for how well we are managing our project costs?
Both perfectly valid “sanity checks” on how things are going in the business but not really sufficient to determine whether we are running our businesses correctly and that each “project”, “delivery”, “service” is cost effective.
When we plan project costs out for each of our business deliverables we include all the usual things, raw materials, labour costs, licencing costs etc, prior to giving an estimate to a customer (or at least we should be doing these things – its a little scary how many people still go “I’ll do that for a grand” without understanding all of the costs).
Lets use an example; XYZ Architects are doing a design project for a major corporate client. When they were doing the estimates up, they assumed that Joe and Margaret would be working on the project and costed it accordingly (including the profit margin). However, Joe was unwell and could not continue working on the project so Michael stepped in. Project got delivered on time – so that was all good.
Or was it?
The problem with this project is that Michael was the managing director and so his costs were higher than Joe’s. As such, the project actually lost money. Ok, the project was fixed price quoted so no change could be made to the charge to the customer.
However, no cost impact was done to assess what would happen if Michael stepped in. If a quick calculation had been done, the company would have seen that the project was a loss leader and could have considered other options e.g. hiring in a contractor or outsourcing to another company.
Tracking project costs is a vital part of any organisation to better understand what is working and what is not. Up to date and timely cost controls and reporting will ultimately lead to more effective projects and consequentially will deliver greater value for your business.
Are you tracking where you money is going on projects?