A project manager’s guide to project expense tracking

Every successful business needs leaders who can keep projects on track and completed within budget. Project expense tracking, making sure that every cent spent is accounted for and moving in rhythm with your business goals, is how you achieve this.

According to research by the Project Management Institute, around one in three projects do not meet business goals, with a higher risk for businesses they term as ‘low maturity.’ This suggests that inexperienced project managers, perhaps unfamiliar with the intricacies of expense tracking, might find their projects veering off course.

If you’re new to the field or are simply looking for a refresher, this article will explain the fundamental challenges of project finances and offer several strategies for you to track expenses with greater precision.

What is project expense tracking?

When embarking on a new project, budget planning is the first thing on your to-do list, as it’s how you know whether the task is feasible or not. Your job is to match the project budget with all expected cost factors — draft some numbers, allocate resources, and off you go.

This seems straightforward, but the reality often tells a different story.

Many projects fail because they overrun or hit unexpected roadblocks, and suddenly, costs spiral out of control. This is why you need project expense tracking: a continuous process of budget management to make sure you stay within the boundaries laid out at the start.

How to break down cost elements

Direct and indirect expenses

Direct expenses are linked to your project, like the wages for your project team or the cost of specific materials for your build. Indirect expenses are a bit more elusive; they support the project indirectly, such as utilities or general office supplies shared across projects.

Fixed and variable costs

Fixed costs remain constant throughout your project timeline, such as your team’s salaries. On the other hand, variable costs fluctuate based on your project’s activity level, such as the cost of raw materials increasing as you ramp up production.

Actual expenses vs. budgeted costs

This is the bread and butter of project budgeting. It’s all about comparing the money you planned to spend with what you’re shelling out. Let’s say you budgeted $1,000 for marketing but spent $1,500 — this tracking helps you spot the difference in real-time.

The importance of expense tracking for project success

Expense tracking is like having an early warning system for your project lifecycle.

If you don’t know where you’re spending your money or when it will run out, you risk sleepwalking into a crisis. Even small budget variances can stack up quickly, pushing your project beyond its financial limits and compromising the quality of your team’s work. 

This is about more than money or deliverables — if you lose credibility as a project manager, key stakeholders will lose trust in your business’s overall “investability”. It might mean waving goodbye to your future projects as well.

To avoid this, you need a robust project cost-tracking system because real-time visibility of your spending is how you make informed decisions on the fly. You can see when you’re veering off-budget early enough to do something about it. Maybe you find alternative solutions that are more cost-effective, or you identify and stop unnecessary spending in its tracks.

Whether it’s nailing down those variable costs or keeping actual expenses in line with your budgeted costs, every bit of effort counts. How you deal with challenges and your ability to pivot strategy will measure your worth as a project manager.

Challenges in project expense tracking and management

So, what are the main reasons for projects going over budget? Let’s take a look at the most common challenges and how you can avoid running into them:

Incomplete or inaccurate data entries

Data is the foundation of expense tracking. If it’s off, even by a little, it can snowball into a big problem and skew your entire financial analysis. This is a common cause of budget overruns and friction between stakeholders and project management. So, it’s best to nip the problem in the bud with a strict approach to data entry protocols.

Encourage your team to take the time to get it right, to check their work, and understand that accurate data entry is non-negotiable for the project’s financial health.

Insufficient stakeholder visibility

A lack of financial transparency leaves stakeholders anxious about where their money is going, which often slows decision-making and erodes trust. At the same time, it’s also a challenge to keep everyone fully briefed on the financial nuances without overwhelming them with information.

You can keep them in the loop with regular, detailed reports. When informed, stakeholders are more likely to trust the process and support necessary adjustments along the way.

Scope changes and unplanned expenses

Projects are dynamic, and changes in scope are common — with scope creep affecting as much as 40% of business projects. But, this can strain your budget and require a reallocation of resources you don’t have.

To manage this, try to keep a part of your budget reserved for these unexpected costs. Stay vigilant and adjust your financial plans to accommodate these changes without compromising the project’s goals.

Inconsistent implementation of policies

Policy compliance strategies are vital to take a consistent approach to managing finances. If team members aren’t on the same page, it can lead to confusion and errors. 

So, it’s essential to have every team member fully trained and aligned on these policies, grasping not just the ‘how’ but also the ‘why’ behind them. As a failsafe, you should also conduct financial audits to guarantee that adherence to these policies is being kept.

Data silos and lack of integration

The term ‘data silos’ refers to data lost, fragmented, or not visible to every department in your business. If your financial data is siloed, it makes tracking expenses a significant challenge.

What you need is full data integration to get an accurate picture of your business’s financial health. Transitioning to cloud software for cash flow management can help massively here, as these platforms consolidate financial data, providing you with a complete overview of your money in and out–making it easy to monitor costs.

Strategies to conduct effective project expense tracking

Effective project budget management means you need total oversight of money in and out.  But it’s not just about keeping a ledger; your system must be resilient to change, and your team must pull with you in so you can see a project over the line.

Set a realistic budget at the beginning of the project

Naturally, the first step is to set a realistic budget. This is your financial roadmap from day one until completion — and it should be your benchmark for how you measure project progress. Having a clear budget upfront helps you anticipate and allocate funds appropriately, reducing the risk of financial hiccups down the line.

Establish and communicate transparent expense policies

Clear expense policies are your best defense against budget blowouts. When everyone knows the game’s rules — what’s approved and what’s not — you pave the way for smoother financial operations. Transparent policies guarantee that all team members pull in the same direction when it comes to spending.

Conduct periodic audits to ensure policy compliance

Periodic audits are a cornerstone of effective project expense tracking. Their purpose is mainly for management to spot any odd spending patterns or mistakes, although you may even uncover areas where you can save money that you hadn’t thought of before. Plus, knowing there’s a regular audit on the horizon keeps everyone sharp and honest.

Implement expense tracking and management tools

Finances are much easier to follow when the data flows through a project expense tracker app. This removes the risk of data becoming siloed because all the relevant statistics and figures are collected, stored, and displayed in one place.

Plus, budget management software often comes with many other useful features, such as automated spending limits or real-time alerts. Combined, tools like these can make sure that project managers can stay up-to-date with all spending and prevent any costly mistakes or miscalculations. 

Mandate comprehensive documentation of expenses

Insisting on comprehensive documentation for every expense might seem like a lot of work, but it’s worth its weight in gold. Detailed records of transactions, including receipts, invoices, and contracts, serve multiple purposes:

• It facilitates audit trails
• It safeguards against unauthorized or fraudulent spending
• The data can be used for financial analysis

It guarantees that in the event of any financial discrepancy, all expenses can be justified and traced back to their origin. Encouraging this level of detail from the start means you’re building a project on a foundation of accountability and clarity.

Establish a clear workflow for expense approvals

A defined workflow for expense approvals eliminates much of the guesswork in the resource procurement process. Once you’ve established a clear system, you can delegate these tasks to your team and make sure expenses are greenlit without roadblocks.

Just make sure that purchase orders are recorded and itemized on your budget management app, so you can double-check where money is going during your next financial audit.

Maintain open communication with stakeholders

Keeping stakeholders in the loop with clear, regular updates on your project’s financial status isn’t just polite; it’s smart business.

An open line of effective communication sets successful projects apart from the ones that sink. It’s a hallmark of a mature organization that’s aware of threatening market forces (for example, rising variable costs) and able to adapt strategy much quicker when it’s crunch time.

Final thoughts

In short, project expense tracking is essential to keep your finances tight and your project on track. 

Get started with these strategies to safeguard your budget and reinforce your team’s discipline when it comes to handling finances and communicating with shareholders. Ultimately helping to drive your project’s success whilst promoting accountability and transparency across your team and with your stakeholders. 

Author bio

David Appel is Global Head of the SaaS Vertical for Sage, the largest technology company on the London Stock Exchange. As a sales and GTM leader, his organizations have earned the business of >2,000 SaaS and Software companies, growing at 40%+/year. He previously ran Direct Sales at Bill.com, led NetSuite’s Software Vertical, and was part of IBM’s Corporate Development team.