How to track project costs

business.gov.au's glossary describes a budget as a listing of planned revenue and expenditure for a given period. For a project, the period is the life of the project, and the starting point is the estimate behind your quote or contract price.

Split the cost side into lines you can track separately, such as materials, labour, subcontractors and equipment hire. Note the price agreed with the customer and the stages at which you will bill it. business.gov.au suggests a written quote state when the work will start and finish, and those dates set the timeline you track against.

Give the project a code, kept in your bookkeeping system alongside the normal accounts or as a column in your spreadsheet, and use it on:

• purchase orders and supplier bills
• timesheets, by project and by day
• card purchases and receipts
• subcontractor bills
• every invoice to the customer.

Where a cost is shared between projects, such as a delivery that served two sites, split it on a stated basis and note the basis on the entry. Check each week for project costs entered without a code, while people still remember where they belong.

Bills often arrive well after the decision to spend. If you track only what has been billed, a project can look on budget right up until the last invoices land. Track the remaining commitments on orders and subcontracts. Reduce a commitment as the corresponding cost enters actuals, including through a part bill or an agreed accrual, and close it only when no amount remains committed.

Costs to date plus commitments is what the project has already locked in. Adding an estimate of the work still to do gives a forecast of the final cost.

business.gov.au suggests a written quote include any variations and revisions discussed. During a project, every agreed change should update both sides of the comparison: the budget for the extra cost and the price for the extra charge. Keep a variations register with the date each one was agreed, a description, the change to cost, the change to price and whether it has been invoiced.

Work done without an approved variation is an easy way for costs to drift above budget unnoticed, because it adds cost with no matching price.

business.gov.au suggests comparing your actual results with your budget to see where you are over or under, and adjusting your plans if needed. For a project, set the figures out by cost line:

Forecast final is actual to date plus committed plus still to do. In this example the project is heading over its budget on materials and labour and under on equipment hire, and overall the forecast is above budget. Labour is the line to look at first, because it has the most work still to do.

The "still to do" column estimates costs not already included in actuals or remaining commitments. Ask whoever is running the work to update it each month, counting each cost once, rather than taking the budget less costs so far, which simply assumes the rest will go to plan.

Compare billing and costs to spot a possible funding gap, then check actual payment timing. Customer deposits and supplier credit can change how much cash the business needs. Put expected customer receipts and payments to suppliers, subcontractors and staff into the cash flow forecast, using payment dates rather than invoice dates.

Your accounting method affects what the books show. business.gov.au explains that under accrual accounting a builder who invoices a completed project records the sale even before being paid, while cash accounting records it when the money arrives. How income on a partly finished project is recorded is a question for your accountant.

1. Confirm every supplier and subcontractor bill has been received and coded, and that no commitments remain open.
2. Invoice any approved variations not yet billed.
3. Compare the final cost with the original budget, line by line.
4. Note what caused each large difference, and use it in the next estimate.

For pricing smaller, repeatable jobs from the same records, see our guide to job costing.