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Oops – Where Did The Money Go!

Money down the drainHow 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?

Budding entrepeneur working on software product solutions for business. My background is mainly operational and senior management roles in mobile telecoms and software houses. Areas of expertise include professional services, out-sourcing, team management and general operations management. I've made the conscious decision to create my own company having spent the last 20 years learning in the corporate world. In my contributions to this forum, I will share some insights and learnings that I've picked up along the way and hopefully they will be useful to some or all!

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  • Thanks Cindy, it’s gets more difficult to manage the more people you follow that’s for sure 🙂

  • Cheers Mairead

  • Thanks Tom, many heads are better than one. Hope you find it useful. Regards, Niall

  • Good point Barney.The truth is that the majority of the times, the plan doesn’t go exactly as we set it out at the very beginning. Adding an extra resource, or having a small job done by someone else, impacts the overall cost indeed. We track it manually, but it might not be the most efficient way.

  • At least you track it 🙂

  • Anonymous

    Did you take that photo yourself Barney? Any tools you recommend using for project budgeting?

  • Hi Una. Photo – need to take a proper one :). Tools – there are lots out there from simply using a straightforward excel sheet, to numerous on-line solutions (which is where we’ll be fitting in down the road), to off the shelf software. The trick is really to make sure you are aware of what your project costs are and to keep and eye on them. If a simple excel sheet works – use it, or whatever works for you – not sitting on the fence, each person does things in a different way.

  • Barney, One problem for small biz is that they either don’t cost or cost correctly for time and resource. Recruitment of salespeople is one area where I see this all the time. In other words, when a small business is recruiting, the will often only consider level 1 costs, recruitment fees + package. I recently undertook some work for a construction client who had estimated that the cost of the sales team for 2009 was -200K. However upon investigation, the actual real cost and loss in this instance was closer to half a million. It was an eye opener for the business owner, I can assure you 🙂

  • Anonymous

    Think most individuals/biz have become more cost conscious over the last 12-18 months as revenues have dropped. It really shouldn’t be an exercise for tight time though!!

    Not so relevant for my biz. If you do develop a I would be very interested as those costs are out of control 🙂


  • Good example Niall. Agree – the real cost for time/resource is often considerable underestimated. Unfortunately, as was the case above, this can happen when it’s too take to do anything about it and you’ve absorbed the cost into your books. Diligence is required!

  • This is such an important reminder for all of us in our businesses, Barney.

    As my business grows, I am becoming painfully aware of what I spend my personal time on. As a friend of mine says about business owners and leaders, we should make sure we spend our time on our “highest and best use.”

    – Anita

  • Hi Anita. Thanks for the comment. I like that quote – “make sure we spend our time on our highest and best use” – that’s spot on!


  • Anonymous

    If the managing director did not have to step in what other jobs would he have being working on . or did he complete this job in overtime. If you look at all ifs you will never get anywhere. I know correct pricing jobs in important but you have to realize that you need to be competitive as well.

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