Many of us look at the monthly bank statements or invoices issued as an indicator for how well we are managing our business costs. A perfectly valid sanity check on how things are going in the business but not really sufficient to determine whether we are running each of our business projects, deliveries, services… in an independently cost effective manner.
When we plan costs out for each of our business projects we include all the usual things, raw materials, labour costs etc prior to giving an estimate to a customer (or at least we should be doing these things – it’s a little scary how many people still go “I’ll do that for a X euros” without understanding all of the costs).
Let’s 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. The project was fixed price quoted so no change could be made to the charge to the customer.
However no cost impact was at the time to assess what would happen to the bottom line 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. Obviously not always an option, but at least the management team would have been considering the full facts.
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.
[...] The painting technique, or approach if you prefer, that I take will fundamentally effect the success of the job in hand though. Sure, I could go for the slapdash approach and it would look ok for a little while.. but it will need to be done again within a year. This is a total waste of time and expense. [...]