Projects cost money and, therefore, require regular monitoring of their operating costs to ensure success.

Indeed, being able to manage and track expenses is what keeps the project within a budget.

It is unlikely that stakeholders will consider the project a success if it costs too much money.

In this article, we will examine what we mean by a project’s operating costs and how best to monitor them.

What is a project’s operating cost?

A project operating cost, also known as Opex—Operational Expenditure, details the expenses a company faces in operating a product or business.

Opex also includes production and operating costs for a business.

The so-called Capex – Capital Expenditure, which is the cost of purchasing, maintaining, or implementing operating fixed assets such as buildings, equipment, land, etc. —is different.

Let’s consider a concrete example: a company’s printer purchase falls under Capex, while the cost for toner, paper, and maintenance belongs to Opex. These operating costs can be divided into fixed, variable, and indirect costs.

Best practices for monitoring and keeping in check operating expenses

1. Defining and classifying OPEXs

The first step is clearly defining and ranking OPEXs based on their nature, frequency, and impact. For example, one can group these costs into fixed, variable, and discretionary expenses.

Fixed expenses, such as rent and insurance, stay constant regardless of the level of production or sales. Variable expenses, such as raw materials and commissions, vary with the level of production or sales.

Discretionary expenses, such as marketing and training, are not essential to core operations but can improve the company’s performance or quality. By ranking OPEXs, you can better identify and optimize expenses.

2. Establish and monitor your OPEX budget

The second step involves setting and monitoring the OPEX budget based on revenue projections, business goals, and industry benchmarks.

The OPEX budget should reflect the corporate strategic plan and align with key performance indicators (KPIs). Regularly monitoring actual OPEX against the budget and analyzing variances will also be necessary. This will help spot any trends, problems, or potential opportunities for improvement.

Establishing periodic strategic reviews is helpful to ensure that the budget stays aligned with business objectives. These reviews can include assessing long-term results and comparing them with the company’s overall strategic goals.  

This approach allows you to proactively adjust the budget and ensure that resources are optimally allocated to support corporate growth and sustainability.

3. Automate and simplify your OPEX processes

This can save time, money, and resources. You can do this by using project management software like Twproject to streamline and standardize OPEX activities such as billing, accounting, expense management, and reporting.

Automation allows avoiding errors and duplication and improves productivity and efficiency.

For example, automated accounting features allow you to log and categorize expenses in real time, ensuring an up-to-date view of business finances.

Moreover, automated reporting tools help generate detailed and customized reports without the need for manual intervention. These reports can include expense analyses, future forecasts, and comparisons between budgets and actual expenses.

Having access to detailed reports in real time facilitates more informed and strategic resource management, enabling managers to make data-driven and timely decisions.

4. Negotiate and review OPEX contracts

OPEX contracts with suppliers, vendors, and service providers should be regularly reviewed. Any good project manager should always look for better deals and terms, such as discounts or flexible payment options.

Current contracts should also be compared with market rates and terms.

5. Implement and monitor OPEX controls

This ensures conformity, accuracy, and accountability. Establishing clear policies and procedures for approving, recording, and reporting OPEX transactions and assigning responsibilities to staff is necessary.

In addition, project managers should conduct regular checks and reviews to verify data and documentation and correct any errors.

6. Assess and improve OPEX performance

OPEX results should be regularly compared with the budget, targets, and benchmarks to identify strengths and weaknesses. Customers, employees, and stakeholders can also provide feedback.

Customer satisfaction, employee engagement, and stakeholder value can be increased by measuring and improving OPEX performance.

Significance of controlling the operating costs of a project

Being able to closely manage and monitor operating expenses directly impacts profitability and determines the realization of strategic business objectives.  

Successful control of operating expenses allows for accurate cost alignment, limits project expenses, and ensures that the budget remains under control.

Moreover, wise expense management leads to an overall reduction in expenses, freeing up cash that can be reinvested in other company areas or used to repay debts.  

This helps maintain financial stability and contributes to project success, as a well-managed budget allows each milestone to be reached with the funds needed for each phase of the project.

Successful cost management ensures maximum operational effectiveness, improving company finances and helping optimize profits. A business with good cost control can complete projects without additional expenses, sustainably increasing profits.

Also, good expense management facilitates better contracting with suppliers and partners, maintaining favorable profit margins. Sound cost management further supports economic stability, allowing the company to thrive even in changing economic conditions.

This also contributes to a stronger corporate reputation, as it demonstrates reliability and accountability in budget management, positively influencing future market awareness.

And lastly, thoughtful expense management prepares the company for unforeseen situations by improving the preparedness and problem-solving skills of the project manager and team. Quickly addressing and resolving cost discrepancies helps keep projects on track and effectively manage any unforeseen contingencies.

Twproject: the ultimate tool for monitoring operating costs

In this article, we have already mentioned how using project management software enables the automation of processes and, as a result, better control over operating expenses.

Twproject, for example, collects project data, analyzes the numbers, and displays the parameters so you can have a sharp outlook at any time. Thanks to its user-friendly dashboard, you can get an overview of expenses in real-time, making it easier to control and manage your budget.

Detailed and customizable reports, easily shareable with stakeholders, simplify in-depth data analysis and monitoring of operational costs.

Expenses change constantly during a project’s life cycle, which can complicate management.

However, with a tool like Twproject, you can monitor expenses effectively. Try it for 15 days.