Category: cost management

Cost-benefit analysis in a project

Measuring costs and benefits of a project isn’t something that can be left to the feelings of the Project Manager. We are talking about the essence of the company’s business and therefore we need certain elements on which to make assessments.

When managing a project, in fact, you need to make many key decisions, taking into account all aspects, including potential costs.

CONTENT

There’s always something that needs to be done and often it is crucial to the success of the project and the organization itself.

Because of the high stakes, good managers do not only make decisions based on instinct, but prefer to minimize risk to the best of their ability and only act when there is more certainty than uncertainty.

But how is this possible with myriad variables and with an ever changing economy?

The solution is to seek concrete data with reporting tools, graphs and spreadsheets, even better with the help of project management software.

Thus, you can use this data to assess your decisions with a process called cost-benefit analysis (CBA).

A smart use of cost-benefit analysis will help minimize risk and maximize gains for both the project specifically and the organization in general. This method of evaluation is crucial for effective project management.

What is cost-benefit analysis?

Jules Dupuit, a French engineer and economist, introduced the concepts behind the cost-benefit analysis in the 1840s.

This method became very popular in the 1950s; a simple way to evaluate the costs and benefits of a project and, therefore, to determine whether to carry on (or not) with a project.

As the name suggests, cost-benefit analysis involves summing the benefits of a course of action and comparing them with the costs associated with it.

The results of the analysis are often expressed as a payback period, the time it takes for the benefits to pay off, also considering the discount rate.

Many people who use it, in fact, search for a payback within less than a specific period.

You can use this technique in a number of situations. For example, when you want to:

  • Decide whether to hire new team members.
  • Consider a new project or change initiative.
  • Determine feasibility of a capital purchase.

The cost-benefit analysis for project management is an additional tool available that the project manager can make use of.

Cost-benefit analysis purpose

The purpose of the analysis is to have a methodical approach to understand the pros and cons of the various possible options for a project, including transactions, activities, business requirements and investments.

In short, the cost-benefit analysis offers options and the best approach to achieve the goal while saving on investment.

There are two main goals to be achieved with the use of this analysis:

  • Determine whether the project is sound, justifiable and feasible, assessing whether its benefits outweigh its costs.
  • Offer a base for comparison of projects by determining which benefits are greater than their costs.
the costs-benefits analysis

How to use cost-benefit analysis

Here are the steps to perform a cost-benefit analysis.

1) Brainstorming on benefits and costs

Although there are some guidelines on how to draw up a project budget, it is always necessary to spend time thinking about all the costs associated with the project and make a list of them, including any unexpected costs (the ones you can think of).

Then, you will do the same for all the benefits of the project, including any potential unforeseen benefits.

2) Give a financial value to the costs

Costs include both the price of the required physical resources and the cost of manpower involved in all stages of a project.

Costs are often relatively easier to estimate than revenues.

It is important to think of as many related costs as possible. For example, how much will it cost to train team members?

Will there be a decrease in productivity while people are learning a new system or technology and how much will it cost?

Also, it is important to consider the costs that will continue to be incurred once the project is completed.

adding estimate and cost

3) Give a financial value to the advantages

This step is less simple than the second one: first, it is often very difficult to accurately predict revenues, especially for new products.

Second, along with the expected financial benefits, there are often intangible benefits that are still important results of the project.

For example, what is the impact on the environment, employee satisfaction or health and safety? What is the financial value of this impact?

For example, is the preservation of an ancient monument worth $500,000 or is it worth $5,000,000 because of its historical significance? Or, what is the value of a stress-free trip to work in the morning?

In these cases, it is also important to discuss with other interested parties and decide how to assess these intangible elements.

4) Compare costs and benefits

The last step is to compare costs with benefits and use this analysis to decide what course of action to take.

For this, calculate the total costs and total benefits and compare the two values to determine whether the benefits exceed the costs.

At this point, it is important to consider the payback time of the investment, to find out how long it will take to reach the “break even point”, i.e. the time when the benefits will pay off the costs.

A simple example, considering a situation where the same benefits are collected in each period, is to calculate the payback period by dividing the total expected cost of the project by the total expected revenues. This way:

Total cost / total income (or benefits) = duration (depreciation period).

How to consider the cost-benefit analysis

The data collected is used to help determine whether the project will have a positive or negative consequence.

It is essential to keep the following aspects in mind when evaluating this information:

  • What are the effects on users?
  • What are the effects on non-users?
  • Are there any external effects?
  • Is there a social benefit?

It is also important to take into account the time-value of the money spent. This can be done by converting expected future costs and benefits into current rates.

Of course, there is a risk intrinsic to any business and the risk and uncertainty must always be considered.

This can be calculated with the theory of probability.

Uncertainty is different from risk, but can be assessed using a sensitivity analysis to show how the results meet parameter changes.

How accurate is cost-benefit analysis?

The short answer is that the analysis will be as accurate as the data entered in the process.

Some inaccuracies are caused by:

  • Relying too much on data collected from past projects, especially when these differ in purpose, size, etc. from what you are working on
  • Using subjective insights during evaluation
  • Improper use of heuristics (problem solving that employs a practical method that is not guaranteed) to obtain the cost of the intangibles variables
  • Confirmation bias or use only data that supports what you want to find

Generally speaking, a cost-benefit analysis is more suitable for small and medium-sized projects that do not take too long to be completed.

In these cases, the analysis can lead the people involved to make appropriate decisions.

For large projects that run for a long period of time, there may be a number of problematic external factors that need to be taken into account in a cost-benefit analysis, such as: inflation, interest rates, etc.,

There are other methods that complement the cost-benefit analysis in the evaluation of larger projects.

Overall, however, the use of this methodology is a crucial step in determining whether or not a project is worth pursuing.

Cost-benefit analysis reliability

The cost-benefit analysis also suffers from reliability when a project has cash flows that vary from period to period.

Furthermore, the revenue that will be generated by a project can be very difficult to predict and the value that people attribute to intangible benefits can be very subjective.

Also, the production of a cost-benefit analysis requires a thorough awareness of project risks.

The intangible benefits analyzed can easily be underestimated or overestimated.

The benefits might also not arise or the risk that the benefit will not be achieved is too high.

The risk has two main factors that compose it:

Risk = Probability x Gravity

Here the level of risk of an event is proportional to the probability of its occurrence and the level of risk of an event is proportional to the size of the impact it generates.

For example, the office in which the project team works could be destroyed by an aircraft (a “risk event”).

The probability is clearly very low, but the severity is very high.

However, for most people the low probability outweighs the high severity, which leads to the conclusion that this risk event is not worth creating a risk response plan.

Ultimately, cost-benefit analysis is a data-based process and must be tackled appropriately.

With the help of sufficiently robust project management software, it will be possible to collect, analyze and distribute information effectively, so that the greatest possible benefit can be gained from a cost-benefit analysis.

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How to monitor and cut business costs with Twproject

In the project management world, keeping business costs under control is critical to any project’s success.

As projects become more complex and the pressure to keep costs to a minimum grows, project management tools such as Twproject become indispensable.

Here in this article, we will explore how to monitor business costs effectively.

INDICE DEI CONTENUTI

Types of business costs: Fixed and variable

First, it is crucial to understand the nature of business costs, which are mainly split into two categories: fixed and variable costs.

This differentiation is pivotal to effective financial management and implementing cost reduction strategies.

Fixed cost characteristics

Fixed costs are expenses that remain constant, whatever the production volume or level of services offered. They include rent, basic salaries, depreciation, and overhead expenses such as utilities and insurance. The main characteristic of fixed costs is their short-term immutability, even if production volume increases or decreases.

For a company, it is crucial to monitor and manage fixed costs because they are expenses that must be incurred regardless of the level of economic activity. Effective management of fixed costs can lead to greater financial stability and better long-term planning.

Variable cost characteristics

Variable costs, conversely, vary with the volume of production or the level of services provided.

Typical examples include raw material costs, shipping costs, sales commissions, and direct labor costs. These costs generally increase as production grows and decrease when production decreases.

Managing variable costs is vital to maintaining competitiveness and profitability. A major key challenge is balancing the production and services offered with the associated variable costs, optimizing the relationship between costs and revenues.

Why business cost analysis is important

Business cost analysis, comprising both fixed and variable costs, is crucial in gauging the financial health of a business.

Understanding how these costs affect the selling price of products or services and operational efficiency can help companies make informed decisions concerning pricing strategies, production volumes, and cost-reduction methods.

Here, tools such as Twproject become critical.

They provide a clear and in-depth picture of the various costs incurred in a project, enabling managers to make evidence-based decisions and plan more effective cost-reduction strategies.

In the next section, we will explore how Twproject specifically streamlines the management and monitoring of these costs, contributing to more efficient and focused financial management.

Monitoring project costs

The first step in cutting business costs is to monitor project costs thoroughly.

For example, by using budgeting and cost planning, you can ensure that projects are funded appropriately and that there are no cost surprises.

Cost tracking allows you to pinpoint any deviations between budgeted and actual costs so that you can take corrective action.

Cost analysis allows you to identify areas where costs can be reduced, such as by lowering resource, material, or service costs.

 

cost management twproject

Managing business costs with Twproject

Twproject stands out as a key tool in business cost management, providing innovative and customizable solutions to address financial challenges in project management.

Its flexibility to adapt to fixed and variable costs makes it a versatile and indispensable tool for managers aiming to optimize the financial management of their projects.

 

  • Project budgeting and cost control: Twproject offers detailed project budget management, helping managers set and monitor budgets for every project stage. This functionality is critical to ensure that costs are always aligned with forecasts and to prevent budget overshoots.
  • Budget Overflow and Underflow: Twproject’s BUDGET_OVERFLOW_FORBIDDEN feature prevents inputting costs that exceed the allotted budget.
  • This check helps prevent budget overshoots and ensures that each project sub-phase meets the higher phase’s budget. Likewise, the underflow control prevents budget reductions below estimated or incurred costs.
  • Assisted financial planning: Twproject helps project managers input estimates consistent with their available budget, facilitating more accurate and realistic financial planning.

Twproject does not just help in budget management but also offers advanced tools for cost control at all stages of the project:

  • Hourly resource cost management: The USE_REAL_RESOURCE_COST feature helps differentiate the internal cost of resources from the value billed to customers. This is critical for proper evaluation of direct and indirect costs and accurate billing of services to customers.
  • Real-time cost monitoring: Twproject allows access to work logs and updated estimates, providing a clear and up-to-date view of actual and estimated project costs.
  • Worklog control and cost center management: the WORKLOG_OVERFLOW_FORBIDDEN feature prevents the logging of over-estimated labor hours, ensuring that the work performed is always aligned with budget and forecast. Moreover, advanced cost center management simplifies allocating and tracking costs across different departments or projects.

Strategic benefits of using Twproject for enterprise cost management

Using Twproject in business cost management offers many strategic advantages:

  • Greater transparency: Twproject provides a thorough and transparent overview of costs, helping managers pinpoint potential waste areas and savings opportunities.
  • Data-driven decisions: with accurate and up-to-date data, managers can make informed decisions to optimize costs and improve operational efficiency.
  • Flexibility and customization: Twproject‘s flexibility in adapting to different projects and costs makes it a versatile tool suitable for a wide range of business needs.

Twproject is a must-have project management software for any project manager who wants to optimize business cost management.

 

 

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Expense report: how to manage it in complex projects

Expense report management is one of companies’ most sensitive and tricky tasks, especially for large projects.

The expense report is a core document that accounts for costs incurred by an employee during a trip or as part of a specific project.

Managing it can be challenging due to the variety of expenses involved and the complexity of the reporting process.

Let’s take a look at how to manage the expense report in complex projects.

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The perfect expense report

Expense report management is critical for many companies, and having a clear and comprehensive expense report is fundamental to ensuring accurate and timely reporting.

A “perfect” expense report should be transparent, detailed and comply with current regulations.

The current regulation on expense reports in Italy is Ministerial Decree 55/2014, which defines the requirements that expense reports must meet to be valid for tax filing purposes.

Here is what a perfect expense report should include:

Personal data

The basic information of the employee who sustained the expenses. They should be clear and accurate to avoid possible misunderstandings or errors. They include:

    • Full Name: Complete identification of the employee.
    • Company Name: The legal name of the business or body for which the employee works. It is fundamental to ensure that the expense report is associated with the proper organization, especially in large companies or groups having several companies.

Expense list

A comprehensive list of expenses is vital to understanding the nature and extent of costs incurred:

  • Detailed: Each expense should be described in detail, specifying, for example, whether it is a business dinner, a train ticket, or an overnight stay in a hotel.
  • Broken by category: Expenses should be split into categories, such as travel, food, accommodation, etc. This helps to understand the nature of expenses quickly and facilitates their approval and accounting.

Date and place

These details are key to putting expenses in context:

    • Period: Specifying the dates when the expenses were incurred helps to understand the context and verify their relevance.
    • Context: The place or event at which the expenses were sustained (e.g., a business conference in Milan or a client meeting in Rome) provides additional details about the nature of the expenses.

Reimbursement of expenses incurred

This section of the expense report should make it clear how and when the employee will be reimbursed:

  • Method of reimbursement: Whether by wire transfer, check or other means, it is key to specify how the employee will receive their reimbursement.
  • Refund times: Clearly state when the employee can expect to get reimbursed, for example, within 30 days of submitting the expense report.

Managing expense reports in complex projects

Managing expense reports in a complex project environment can be a significant challenge due to the variety of expenses and the reporting process’s complexity.

Some of the challenges and critical issues that can arise in managing expense reports in complex projects include:

Variety of expenses

In large projects, expenses can come from multiple sources and for different reasons:

    • Travel and transfers: Business travel, both domestic and international, may include expenses for transportation, accommodation, food, and other related expenses.
    • Procurement of goods and services: This may include software purchases, equipment, external consulting, and more.
    • Events and trainings: Attending or hosting events, seminars or training courses may incur significant costs.
    • Unexpected expenses: In any project, unexpected expenses may emerge during the course of the project and must be properly documented and justified.

Complexity of the reporting process

Reporting expenses in complex projects can be a tricky process:

    • Expense approval: Any expense might require approval from different hierarchical levels or departments, such as finance or management.
    • Verification and monitoring: Expenses must be reviewed to ensure they are legitimate, relevant to the project, and in compliance with company policies.
    • Reporting: All expenses must be documented appropriately, with receipts, invoices, and other evidence justifying the amount spent.
    • Reimbursement: Once approved, expenses must be reimbursed timely, per the procedures and timeframes established by the company.

Twproject: a one-stop solution for managing expense reports

nota spese

In an age where digitization and automation are revolutionizing how businesses work, expense report management is no exception.

Manual expense management, relying on spreadsheets and folders full of receipts, has become obsolete and ineffective, especially in large businesses or complex projects.

Twproject stands out as a state-of-the-art solution, offering many features that make it a precious ally for businesses.

Here is a detailed analysis of its key features:

  • Multi-currency management: In an international context, companies must often manage expenses in different currencies. Twproject can manage expense reports in various currencies, ensuring accurate and up-to-date conversions and making reporting and approving costs incurred in foreign currencies easier.
  • Recurring and one-time expenses: Every company has recurring payments, such as subscriptions, but also one-time costs, such as travel expenses. Twproject allows both types to be managed effectively, enabling clear categorization and detailed tracking.
  • Personal expenses: An employee may incur an expense that does not fall under the company’s reimbursable items. Twproject also offers the option to record these expenses, ensuring a clear distinction between reimbursable and non-reimbursable expenses, thereby providing transparency and clarity in the reporting process.
  • Efficiency and accuracy: Managing expense reports with Twproject significantly reduces the time spent filling out, approving, and reimbursing expenses. It also minimizes the risk of human error, ensuring more accurate reporting.
  • Allocation to cost center: Whenever an expense report is inserted, it can be automatically associated with a specific cost center. This ensures that each expense is correctly recorded and allocated to the right project or department.
  • Accessibility and traceability: Expense information will become accessible in real-time from any device, allowing better tracking of expenses and greater transparency in the process.

Bottom line, Twproject is not just a project management tool but also a comprehensive solution for managing expense reports.

Its versatility and advanced features make it a great option for companies looking for an effective and reliable way to manage expenses.

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How to use the cost center to simplify large projects

The cost center is a valuable tool for simplifying the financial management of projects.

Accurate and detailed cost management is critical to ensure sustainability and growth in any company. Elements such as raw material, unit cost, and other economic factors are essential to the success of any business.

But how can all these elements be successfully managed?

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The answer lies in the strategic use of cost centers, which provide comprehensive control over every financial aspect of your business.

Let’s examine how the cost center can help you simplify cost management for large projects.

What is a cost center?

A cost center is a department within a company that is in charge of certain costs.

Each single cost center is responsible for the costs involved in manufacturing products or providing services. It can be a production line, a department, or a subsidiary.

The cost center allows information to be collected regarding the costs of all project activities and components. This information can be used to:

  • Getting an overview of project costs
  • Identify cost areas where improvements can be made
  • Monitor cost trends over time

The various cost centers within a company can be associated with different products or services. Each product or service may have different related costs, which can be monitored and analyzed separately.

 

Why create a cost center map

Creating a cost center map is critical. The map helps to understand where costs occur and how they are distributed within the company.

Twproject is project management software that can streamline this process. It allows specific costs to be assigned to each cost center, providing in-depth insight into the allocation of costs within the company.

 

Notably, Twproject makes it possible to create a cost center map tailored to the company’s specific needs and defines cost centers based on the activities carried out by the company, products or services offered, or other criteria.

It also assigns costs to each cost center accurately and efficiently.

Information about costs provided by Twproject can be used for many different purposes, including:

  • Calculating the cost of products or services
  • Cost analysis
  • Cost management
  • Improving efficiency and productivity

 Project managers can easily monitor direct and indirect costs, production time, and other crucial aspects. Twproject allows assigning and tracking costs for each project, significantly simplifying cost management and analysis, providing greater efficiency and control.

It offers a clear, detailed, and up-to-date view of costs incurred, helping companies optimize resources and improve efficiency.

6 tips on how to simplify large projects with the cost center

Here is a guide on using the cost center to streamline large tasks while ensuring efficiency and financial control.

1. Get a cost management software

Begin by getting a cost management software such as Twproject. This tool centralizes and automates cost center management, allowing you to monitor costs in real-time, assign specific budgets, and generate detailed reports on a one-stop platform. This will save you time and reduce the risk of human error.

2. Clearly define your cost centers

A clear definition of each cost center within the project is key. This step eliminates confusion, makes communication with your team, and ensures that everyone is on the same page about the project’s cost structure.

3. Assign a specific budget

Assigning a specific budget to each cost center also prevents overshoots and ensures that each cost center has the financial resources it needs to operate efficiently.

This step is crucial for maintaining financial control of the project and preventing unexpected expenses.

cost management

4. Monitor costs regularly

Regularly monitoring actual costs compared to projected costs for each cost center allows you to spot any discrepancies quickly and make timely corrections. This practice ensures that the project remains within budget and time constraints.

5. Build your team

Make sure your team is properly trained on effective cost center management. An informed team is invaluable for cost control and effective project management.

6. Perform regular reviews

Don’t forget to regularly review your cost centers to ensure they stay aligned with project objectives. This allows you to make adjustments based on project needs, ensuring that cost centers are always optimized.

By implementing these steps, cost center management will become a more seamless and manageable process, thus contributing significantly to the success of your large project.

By streamlining internal project management via Twproject, we were able to implement a very strong and effective cost control on the resources directly involved in account-based projects.

Read the interview with Temera and discover the advantages it gained from relying on cost management with Twproject

Managing cost centers with Twproject

Recently, we released a new Twproject version with improved cost center management features.

Here’s an overview of its new features:

  • Cost center propagation

This feature allows you to change the cost center of a task or resource and automatically propagate the change to all subordinate subtasks or resources. This way, you will not have to update each item manually.

For example, if you change a project’s cost center, all project tasks and resources will automatically be updated with the new cost center. However, if a task or resource has a different cost center from the project, it will remain unaffected.

 

  • Choosing the type of cost center

Before, cost centers were used for both projects and resources. This new feature allows you to manage cost centers for projects and resources separately. This allows you to choose whether to use cost centers for projects, resources, or both and have a clearer and more organized view of your data.

 

  • Cost center legacy

This feature automatically allows project add-on costs to inherit the cost center from their phase. This way, you can skip manually editing the cost centers for each add-on cost.

For example, if an additional cost is related to a project phase, the cost center of that extra cost will automatically inherit the phase’s cost center.

In short, these new features allow you to:

  • Save time since you won’t have to update cost centers manually;
  • Improve accuracy, preventing potential errors;
  • Have a more transparent and structured overview of your data.

Ultimately, the cost center is a powerful tool for streamlining the financial management of large projects. Properly using the cost center can improve cost transparency and efficiency, reduce risk, and improve the odds of achieving project success.

Remember, sound cost control is the foundation of successful project implementation.

 

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How to make a project budget

How can I create a budget for a project if I have no historical basis on which to orient myself?

When starting a project, it is difficult to know how much it will cost.

If we are dealing with a repetitive project, we will probably have a history on which to base ourselves.

In this case it may be easier to draw up a project budget, but different is the case when it comes to a new project.

Project managers are required to account for their budget estimates.

Given the great uncertainty that usually prevails in the initial phase of a project, this can be one of the major challenges of a project manager.

The ability to create an accurate budget is an essential skill for a project manager.

It can be a daunting task, especially for new project managers; however, once the first budget is created, you will have a first reference system.

From then on, it will be easier to manage this aspect for future projects.

CONTENT INDEX

The approaches to drafting a budget

There are two main approaches that can be adopted when drawing up a budget:

  • Top-down approach: decide how much the project will cost in total and divide the amount between the various phases of work;
  • Bottom-up approach: calculate the individual work steps, starting from the lowest level, then adding sum up their cost and estimate the total cost of the project.

Both approaches, like all things, have their advantages and disadvantages.

Let’s try to evaluate them together.

How to make a project budget: The top-down approach

The top-down approach, literally from top to bottom, is more than simply a guess of the total amount on which to base the whole project.

In fact, it is necessary to explain how the work will be carried out and structured within the amount of budget allocated for each phase of the project.

One should ask oneself if the balance sheet seems realistic on the basis of the experience of past projects, if there are any.

The advantage of the top-down budgeting approach is that it focuses on achieving the project within the allocated budget and leads to efficiency and reduction of costly practices.

A disadvantage is that it presupposes that the person who creates the budget has sufficient knowledge and skills to make a reasonable cost estimate.

If this is not the case, a conflict may occur when a team member is assigned an unrealistic and insufficient budget to complete his work phase.
In fact, there is the risk that deliberately low budgets are created with the – false – belief that this will encourage cost savings and waste elimination.

How to make a project budget: the bottom-up approach

In the second approach, bottom-up, literally from bottom to top, the project budget is built starting from the individual work stages, from the lowest level, and adding them up until reaching the total cost of the project.

The team is often involved in identifying the tasks and activities needed to complete the project and to estimate the various costs.

The advantage of the bottom-up budgeting approach is its accuracy, assuming that we have not forgotten any activity, and consequently its cost.

It is good for team morale because the project manager involves the team in budgeting.

For this reason, this approach is sometimes called participatory budget.

A disadvantage of the bottom-up approach is the difficulty of obtaining a complete list of activities and tasks necessary to complete the project, especially if it is something new, or if we are dealing with a young and / or inexperienced team.

In fact, the risk in starting new projects or in the involvement of junior resources, may be that of not contemplating entire phases of activity and process.

This inevitably leads to totally unleashing not only the costs, but also the time required to complete the project.

The different types of cost in creating the budget

In creating the budget the Project Manager must take into account different factors and above all the different types of costs.

There are basically two types of costs that affect project managers when they create a budget:

  • Direct costs
  • And indirect costs.

The former are uniquely attributed to the project and can be easily definied, such as: the cost of personnel, equipment, travel, consultants, ecc.

Indirect costs, on the other hand, are related to expense items loaded simultaneously on more than one project. Only part of their total cost is charged to a single project.

For example: telephone bills, office rent, company insurance, office equipment, etc.

How to calculate these costs?

For example, if the project will take 6 weeks and the internet bill is € 50 per month, the total cost of the project will be € 75.

To get an idea of the other costs, you can take a look at the previous year.

It will be necessary to see what has been spent on the whole and then divide it by 52 (the number of weeks in the year) to obtain an average weekly cost.

This can be valid for an indirect cost such as that of the equipment.

How to make a project budget: the management reserve

A management reserve or contingency reserve is usually added to projects and usually corresponds to a percentage of the total cost and time of the project.

This fund is used when events related to unexpected costs occur during the project.

The management reserve should be adjusted according to the level of risk identified for the project.

Clearly, the more risky the project is, the greater the management reserve will have to be, and viceversa.

A routine project, already carried out several times, will have a lower management reserve than a totally new project.

The budget will therefore be made up of direct costs, indirect costs and the amount that serves as a management reserve.

 How to make a project budget

How to make a project budget: ineligible costs

There are also costs that are generally not eligible in a project and therefore can not be included in the budget.

In general we can identify them in the following:

  • Non-accountable costs, such as voluntary work;
  • Capital investment costs;
  • Financial charges;
  • Passive interests;
  • Losses caused by the currency exchange, among other things not quantifiable given the volatility;
  • VAT in the case it is a recoverable cost;
  • Costs covered by EU funding or by another type of state funding;
  • Sanctions.

Manage budget changes

Projects rarely go according to plan in every detail.

It is therefore necessary that the project manager is able to identify when costs vary from budget and manage these changes.

A project manager must regularly compare the amount of money spent with the amount provided and report this information to the managers, the company president and the stakeholders.

It is therefore necessary to establish a method on how these progress will be measured and reported.

A widely used method for medium and high complexity projects is the earned value method.

This is a method of periodic comparison of the estimated costs – budget value – with the actual costs during the project – actual value.

The earned value method can provide information not only with regard to cost variances, but also with regard to time deviations, ie if the project is on time or not.

A simple way to evaluate the progress of the project is to take two values:

  • Direct cost percentages pertaining to an activity;
  • Sum of already worked hours on the activity and the forecast of the hours until the end of the project.

The progress of the activity will therefore result from the product between these two indicators. If it less than 1, it means that we are facing a project delay.

At the end of a project, it will be necessary to evaluate if a budget deviation has taken place and what were the reasons that caused it.

Regardless of the approach a project manager chooses to make the budget, it is essential to take the time to monitor it throughout the whole project.

In fact, for project management, cost monitoring is a strategic aspect.

For this reason in Twproject, we have developed the functionalities able to insert and manage both the costs generated by the work (direct costs) and the additional costs (indirect costs), reserving, of course, such access only to the Project Managers.

The importance of monitoring and managing a budget is crucial! Here is a small example of the support that TWproject can give you.

how to make a project budget

In this example (an integral part of the previous screen) your forecast margin (calculated from budget and planned costs) is 850.

This is the first estimate you’ve made, and it’s probably very close to what you told your client.

Then, in a second phase, you have refined your estimate: the second line represents how it is going in relation to what is planned.

The last line is the “real” situation, you have a budget of 2500, and you have spent 1285. Great! There is a margin of 1215, better than expected!

By streamlining internal project management via Twproject, Temera was able to implement a very strong and effective cost control on the resources directly involved in account-based projects, and to include and represent costs and resources from other services and systems in the same tool

Read the interview with Temera and find out how they optimized budget management with Twproject

Which is the best tool for making a project budget?

Therefore, building, customizing and monitoring the budget are fundamental aspects for a winning project!

Budget management is of the main tasks of the project manager, who also has many other activities to carry out during the project life cycle.

The support of a project management software can prove to be a very effective choice, not so much to eliminate the risk of cost overruns, but to help keep them under control.

A tool like Twproject is developed to meet the supervisory needs of the Project Manager and of those in the company who deal with cost management.

See how useful it is to use Twproject to manage your costs:

If you want to start testing the features of our software today, to create an accurate project budget, try the demo version: it’s free and complete with all the useful and necessary features.

What are the biggest difficulties you have experienced while creating a budget?

What strategy did you use?

Leave us a comment and share your experience with us.

Start now to create an accurate project budget

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Revenue management with Twproject: an excellent solution

By reading this article, you will discover how advantageous revenue management with Twproject is, and some tricks to put it into practice in the best possible way.

The detailed and constant analysis of a company’s financial flows is the main tool for not making losses, and in general for not running into unpleasant events that could easily degenerate over time.

But why is it so important to schedule periodic checks of these flows?

Because in order to manage a company properly, it is often necessary to play in advance, predict the moves and have clear forecasts of future trends.

To do this, it is useful to know in detail the economic potential of the ongoing projects, so as to make the right investments and not grope in the dark.

To this end, it is essential to have a tool that aggregates costs and revenues, and this is where the management of these factors with Twproject comes into play.

CONTENT

We have recently seen how easy it is to keep the costs of your projects under control.

Now it is time to focus on revenue posting. Doing it with Twproject is really fast and easy.

Estimated and actual values

What distinguishes the cash flow analysis in Twproject is the possibility of always differentiating between estimated and real flows.

This applies to both costs and revenues.

In fact, as in the cost sheet, also for revenue management with Twproject you can add all the expected revenue streams, thus obtaining a probable trend of this crucial aspect.

The method

First, enter all the revenues you think you will get, with an expected date.

Later you will enter the actual revenues and if you want you can also attach the billing document.

Twproject also offers you the possibility of quickly converting a forecast into an actual revenue with a simple click if the value and date have been respected. This will save you a lot of time!

Furthermore, revenues can be registered at each node of the project tree and the total will be reported in the main node under the “total on children” item.

Adding real incomes

The progress diagram (cash flow)

As you enter your data, you will see the financial (or cash) flow of your project compose with a linear diagram that aggregates income and expenses.

In addition, here you will also find the graph relating specifically to the revenue trend and which shows the gap between real and estimated values.

RRemember to always include dates so your diagrams are as accurate as possible!

And remember that the cash flow is visible in each node of the project’s tree so you will not only have a general trend of the project but also a specific detail phase by phase, depending on how you want to track the data.

As you can see, also in this case Twproject offers you the solution to leave all spreadsheets behind and to manage all aspects related to financial performance in a single platform.

An advantage in many respects

Thanks to project graphs X-BRAIN now keeps track of actual costs and revenues against what was budgeted.

Read the interview with X-Brain and find out how they manage project revenues with Twproject

1. The importance of forecasting in the revenue management with Twproject

Currently, if you use any electronic invoicing software it is normal to have invoices already managed and saved online, but there are no tools that allow you to differentiate between expected and actual revenues and above all that give you this information relating to a specific project.

This will allow you to truly identify those projects that do not meet the billing plan or whose income does not exceed the expenses.

This is crucial for analyzing deviations from the project baseline and refining techniques to make more accurate forecasts.

2. Data transferability

Consequently, it is clear that this is also an excellent tool for refining business strategies and using the real data of a project even on similar projects to be programmed for the future.

Having the situation of your revenues in real time will not only help you stay within budget during construction but will also be useful when you want to estimate the budget for new projects.

3. Sharing of responsibility

You will be able to choose who and to what level of depth will be able to access data on financial flows, making the monitoring of this aspect a team effort.

By sharing the data with your team, you will be able to give responsibilities to those directly involved, whether they are project leaders or in charge of single phases, or also decide to leave this aspect to well-defined figures.

Twproject security is extremely refined and you can define who will have the opportunity to interact with project costs and revenues.

Do not waste any more precious time and take a free trial to experience how convenient it is to monitor your revenue with Twproject.

If you like, share your experience with us and let us know what you think.

Manage your flows from A to Z with Twproject

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Earned Schedule

The Earned Schedule (ES) is a rather recent methodology.

It was first introduced in 2003 and it is a method of analysis that extends and completes the benefits of the Earned Value Management.

Currently, the Earned Schedule method is used globally in projects of any type and size.

This method is taught in academics, is included in project management manuals and standards dictated by the PMI and is also a research topic at the university.

Not only theory but also practice. It is now widely demonstrated that the ES is useful for project managers for the analysis and control of project performance.

CONTENT INDEX

Why is the Earned Schedule born?

Everything is born and takes its cue from the EVM (Earned Value Management) method that offers the project manager and other stakeholders the possibility to visualize the actual costs of the project during its entire life cycle. This, as it is easy to deduce, allows a more effective management of the project itself.

In its original form, the EVM was used to evaluate project performance and predict the cost of the project upon completion.

Normally, project control is established at the level of the work package or the cost report.

In fact, however, this control, although helps in cost management, does not contribute to the control of implementation times. EVM data indeed are not generally used to estimate the time needed to complete a task, a work package or a project or to predict the completion date.

This can lead the project manager to make bad decisions about the Project in general.

It is precisely to fill this gap that the concept of Earned Schedule (ES) is born.

In fact, the ES can transform EVM metrics into time or duration metrics in order to improve the evaluation of the project planning performance and to predict the duration required for its completion.

When combined with an appropriate analysis, this approach can improve the understanding of the estimated time for the Project completion.  It can also provide further insights that allow to make better decisions about project planning and other related parameters.

So let’s see more in detail what it is.

Measure and indicators of the Earned Schedule

The idea of Earned Schedule is similar to the concept of Earned Value (EV). However, instead of using the costs to measure project performance, the reference unit is time.

If we consider the projects that are late, in fact, using the Earned Value, we will have unrealistic indicators. The obtained values will, in a misleading way, make the state of the project look better than it actually is.

The problem lies in the fact that the Earned Value is a value indicator and not a scheduling indicator.

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This then brings the planned value at the end of the project to coincide with the budget upon completion even if the project is late.[/av_notification]

Therefore, the fundamental concept of the ES is to determine the moment, in terms of time, in which the planned work should have corresponded to the value of the work carried out at that precise moment.

earned schedule

The formula of the Earned Schedule

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The Earned Schedule formula corresponds to
ES = C + I.
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Where  C is the number of intervals in which EV is equal to or greater than PV and I is the share of the intervals after PV.

In the researches carried out, the question asked was whether the ES is a better method of predicting the duration of the final project than the EVM methods.

The answer is that the ES is way better than any other method related to Earned Value Management.

Of all the methods and data sets studied, the ES is referred to as the best duration prediction method of a project.

For sure, this method is useful for project managers when they have to make decisions in order to meet delivery dates.

While the Earned Value provides an estimate of when the project is likely to end, the Earned Schedule produces an understanding of the probability of completion in precise moments over time.

The ES can also provide useful information to the project manager and analysts and is not difficult to calculate.

Of course, additional work is needed, but it is not as time-consuming as a complete bottom-up review of the entire project program.

EVM and ES have been integrated with statistical confidence limits in order to obtain probable results for the final cost and duration of the project.

The results of this work have shown that the proposed approach is sufficiently reliable for the general application of the forecasting method, both in terms of cost and duration.

earned schedule 1

Moreover, it is shown that the ES approach can be applied effectively no matther what the type of work or the extent of the cost and duration of the project.

Big deviations between the project status and the forecasts usually attract the attention of management and translate into corrective actions. Small deviations are usually not taken into account.

By quantifying and highlighting these deviations, it is possible to bring the focus of management on projects or work packages that require more attention.

As a result, these tools support the effective management of projects and improve the management of the portfolio of business projects.

Consistent use of these techniques that predict project outcomes provides an optimal approach to project reviews, increases confidence in project delivarables as time progresses, and improves management’s ability to take corrective action and appropriate decisions.

Conclusions

In conclusion, we can say that the EVM is a powerful methodology that helps project managers and other stakeholders managing projects and programs more effectively.

By integrating it with the ES method, it is possible to produce valid indicators and reliable predictions on the duration of the project.

The research found out that, compared to other methods based on the EVM, the ES produces the best predictions on the duration of the project.

The Earned Schedule method has a lot to offer to the project manager in order to help him drive and control his project from the beginning to the end.

Have you ever had the opportunity to apply the Earned Schedule to one of your projects? What are your observations? Write them in the comments.

Analyze your projects with the right tools.

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The Most Effective Strategy to Estimate Projects

Estimate projects correctly is a difficult task that every project manager has to face. It doesn’t matter if you estimate in order to evaluate resource work load (time/effort estimation) or just to create customers’ offer (cost estimation), the problem is just the same.

How can I predict exceptions, delay, bottle necks and create an estimate that is as close to reality as possible?

The answer is quite simple, you can, if you count on your team.

Identify the problem:

Estimate projects is difficult, in particular when you came to big ones that last months, maybe years. In these specific cases estimation could be just a guess. An incorrect estimation can generate several problems, for your team and your company in general:

  • Underestimated projects: this is what happens the most, particularly when project managers have direct contact with customers, if you want read more about why underestimation is so common you should read this article.[av_hr class=’invisible’ height=’15’ shadow=’no-shadow’ position=’center’ custom_border=’av-border-thin’ custom_width=’15px’ custom_border_color=” custom_margin_top=’15px’ custom_margin_bottom=’15px’ icon_select=’yes’ custom_icon_color=” icon=’ue808′ font=’entypo-fontello’ av_uid=’av-8mxc4q’]Robert works for a small company where he is a project manager and also the commercial director. He knows that his team is doing its best but he doesn’t want to lose any new customers opportunity. For this reason he underestimates his projects, trying to convince the team that every new customer can make the difference for a small company like theirs. Doing this, the quality of the product decreases, the team is overloaded and the project manager completely loses the correct perception of the project cost. Robert knows that his company will suffer of high turn over.

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  • Overestimated projects: Project managers more connected with the team tend instead to a pessimistic estimation of the project.[av_hr class=’invisible’ height=’15’ shadow=’no-shadow’ position=’center’ custom_border=’av-border-thin’ custom_width=’15px’ custom_border_color=” custom_margin_top=’15px’ custom_margin_bottom=’15px’ icon_select=’yes’ custom_icon_color=” icon=’ue808′ font=’entypo-fontello’ av_uid=’av-mc3sa’]John is a project manager and lead architect of a young software house. Every time a new projects begin he speaks to his team to make the correct estimation of tasks. Being near to his colleagues he knows how many problem they face and he prefers to overestimate his projects. Resources look over planned and the commercial department can lose opportunities for this lack of communication. At the end of the year John knows that his team could have released more products with a correct estimation.

Being a project manager with estimating problem you have probably found yourself in one of the two described above, maybe with different circumstances but probably with the same outcome.

Of course a correct project estimation can fix all these problems, correct scheduling, resources’ workload. So, how can we improve it?
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Find the solution:

Being a project manager, maybe a senior one, your management skills are probably very refined, you know the effort for managing a team conflict, you probably know how to calculate the revenue of your task, but what about developing that specific product requirements? The project manager is able to identify all the phases of the project structure, but who better knows how does it take to accomplish a specific phase than the resource working on it?

The key for a correct project estimation is in your team knowledge.

Nicole is a project manager at ACME spa. She works with a smart and diversified team. Every time she is assigned to a new project and she has to estimate it she organizes a meeting with her team to develop the Gantt of the projects. Nicole sets the milestones if she has some and tries to define the end date of the project. She identifies the best resources for the work and then she asks them a refined schedule and estimation of their small portion of work. No one knows better than Giulia how effort it takes to make a perfect email layout. Nicole asks also to her colleague which problems she encounters the most and with which delay. Nicole asks to her team members to become everyone the project manager of his own specific tasks.

The knowledge of the team is very precise and very close to every specific matter, they know most of the possible exceptions, every possible delay, every bottle neck on their specific phase. To have a complete and precise estimation you have to go deeper with your team and analyze with them all the phases, let them estimate their phases like they would be the project managers, delegate. This approach will help you improve your resource management in general.

Also, if you work on projects that can repeat in time you could ask your team to specify every step of the work with its effort.

This to-do lists could be used as a template in time, to avoid loosing time estimating the same things again and again.

Save your team knowledge is the key to estimate projects correctly. It is what you can use to make comparison and learn in time estimating even better.

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Conclusion

Using this strategy you could be able to have a better idea of the effort of the project and every possible exception that can occur.

  • Identify your project phases and your goal end date
  • Identify your milestones and discuss them with your team
  • Select the best resources for each phase and delegate the task to them
  • Let the team write down every step of their phase to estimate it.
  • Use the knowledge from the team on every phases to estimate the entire project from bottom up

Using this strategy with a project management software that can help you creating a Gantt chart, assigning your resources, checking their workload could really make the difference, estimate projects will become easier.

If you want to learn more about how to introduce a project management software in you company you can read our article.

Start now estimating your projects correctly

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Twproject 6.0.60017: Mobile Receipt Upload

Things are a little bit messy right now at Twproject because we are developing a brand new mobile app and we are totally over excited with all the new great features we are developing. Waiting for this new amazing release, we are still improving our beautiful application, even the mobile one, today in fact I introduce you the new mobile expenses editor with the possibility to upload pictures directly from your phone. You just need to update your Twproject and the mobile application will be updated too.

File upload on assignment expenses was already available on the web application but now it is available on the mobile view too, so practical to just take pictures of your tickets and receipt and upload them on your assignment.

The complete list of bugfix and improvements is here: https://twproject.com/twproject-changelog/

This is a free upgrade for all users of Twproject 6.

It does not include database changes.
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Costs Management with Twproject

Perhaps it can be easy to manage the costs as a whole, but sometimes it is not as easy as it looks to enquire about specific aspects or the ramification of costs. Twproject allows to manage the costs of a project, particularly also the costs related to the work performed (for example, travel costs).

Costs management is of course one of the aspects that makes the success of a project and it affects deeply the value chain. Perhaps it can be easy to manage the costs as a whole, but sometimes it is not as easy as it looks to enquire about specific aspects or the ramification of costs.

The something is going wrong feeling is, of course, not enough. The certainty that something is going wrong is not enough as well: it is necessary to know exactly what is going wrong, why and at which level (whole project, task, sub-task).

Twproject is the full featured web based project management software that gives you full visibility and control over your projects, and it manages all the aspects of the value chain as well. It allows to manage the costs of a project, particularly also the costs related to the work performed (for example, travel costs).

Furthermore, with Twproject it is possible to assign a budget related to specific issues of a single Project / Task / Sub-task (equipment, courses, external consultants…). The budget management and assignation process can be “atomized”, so that the control workflow becomes more flexible, easier, more “on the spot”.

project-data-overview-5

In this way the cost allocation can be constantly monitored as a whole and in its elements: Twproject can send an alert if the cost (even for the single Project / Task / Sub-task) is reaching the budget limit, so it is possible to monitor, and react to, budget overflow, just when and where it is really needed.

Just follow this link if you want to know more about cost management with Twproject.

 

Still in doubt? Well you can try yourself with a free demo.

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Simplistic cost/benefit evaluations of organizational tools adoption

SDY1

I’ve recently received yet another request of a cost-benefit analysis given by the adoption of Teamwork, in general, of project and groupware management software. Not always in those exact terms, but we do periodically receive such requests. One may rephrase the question as “what is the exact economical gain given by adopting Teamwork”?

Very superficially, this looks like a clear question, which requires an exact answer. Let’s take a closer look.

What does it mean “adopting Teamwork”? If one takes even a cursory look at Teamwork user guide, one should quickly realize that for a tool that can integrate at so many different levels with IT infrastructure, this may mean all sorts of different things: one may be handling just high level projects, sharing them on the web, or one may have integrated it from intranet authentication and certification forms, following every little action in the company.

One may be using the exchange function with Subversion, Google calendars  and Twitter, so even the boundaries between what is done in the company by Teamwork and what is done by other applications is blurred. So “adopting Teamwork” has different meanings for each adoption process.

But there is an even bigger conceptual mistake that is lingering here, given by the first part of the question, “exact economical gain”: i.e. that taking steps in improving quality of work, by implementing software aided organizational procedures, is a purely economical gain that can be accounted for say is a year after the reorganization. Anybody that has experience in reorganization and working on quality of work and communication knows that consequences cannot be evaluated so simplistically, though they can be great, and span an entire work life.

This said, the benefit that one will have basically depends on the plan and determination of the leader that is introducing innovation, by her/his culture, open mindedness and experience in the field and in human relationship, and the respect that she gets from the team; and we believe that in some cases (not all), Teamwork can be of help for such individuals, more structured help than just a to-do list shared online. But don’t ask us to fool you with numbers thrown at random; you should probably be very suspicious of vendors that promise X% “gains in efficiency” by doing this or that. Our customer list is partly public, the best way is to ask them, and everybody will give a different answer. Just my two cents.

Pietro Polsinelli