Do You Know the Real Value of Your Projects (Accounting & Finance Perspective for Your Projects)
Why is project costing important?
It can often be difficult to quantify exactly what a specific job will cost.
- Do you really know the effectiveness of your labourers?
- Do you have excess material at the end of the job and how much does this cost?
- Do projects overrun?
Are there additional unexpected costs? - Do you get cash from customers in a timely manner to pay for materials?
- How do you allocate the cost of tools to each project?
Preparing a detailed ‘budget’ will enable you to allocate expected income and costs directly to a specific project. Once prepared, the actual project can then be monitored closely, at regular intervals with a comparison to the original outlook. This is beneficial as it can identify areas of risk, which if captured early enough, can be used to make decisions that could bring the project back on track!
What costs should be allocated to a project?
Businesses that run projects will usually quote upfront for a job but how accurate is the quote?
The main factors of a quote will be cost of materials and time but what about ‘other costs associated to your business’ do you allocate these when considering how to price jobs? Often overhead costs are forgotten as they are paid at different times and not directly attributable to a job, however this could be resulting in businesses losing profit unnecessarily as there may be an opportunity to improve margins which can offset some of those hidden costs.
What is the process for managing project costing?
- Identify costs associated to your project including materials and other expenses such as travel, labour etc.
- Use these costs to build a budget which sets a baseline for expected project profitability. This should be realistic and phased in months to ensure the costs are aligned to the project timeline.
- Develop a cash flow. It is likely a cash outflow will be required to buy materials, therefore building an effective cash plan with customers will be crucial, especially if you are running multiple projects as you do not want to be stung with a significant cash outflow before any receipts are received.
- Review actual spend regularly with a detailed comparison to budget with an aim to identify any areas of risk and implement solutions to mitigate those risks.
- Complete post audit reviews by using historical data and analyse the accuracy of previous projects including time/labour/costs etc.
