There are many ways that bad cost tracking arises, and they usually involve the word “lack:” a lack of continuous planning in real time, a lack of communication among the team, a lack of asking the right questions and learning from past mistakes, and a lack of the proper tools needed to keep costs on track.
As a result, poor processes are more common than anyone realizes. Most errors that slip through the cracks don’t cause catastrophic project failures, but in aggregate, they lead to leaks in project value. It's often like a slowly dripping faucet—it’s annoying, but it doesn’t always carry with a sense of urgency to resolve it.
You may not even be aware of the practices you and your team have turned into habits, but there are signs that those behaviors are costing you.
Read on for some clues that your processes are letting you down and then take a look at our guide to The Fundamentals of Project Cost Tracking for solutions.
• You’re not prepared for surprise requests from the boss. It’s a fact of life that you will get last-minute status update requests from senior leadership. Are you ready to share accurate information at a moment’s notice? Can you easily prepare answers for all the questions they’re likely to ask? If not, your cost tracking process needs to enable real-time data analysis.
• You have a difficult time measuring progress on your projects. Can you pinpoint how far along your vendors are on the job? Insufficiently detailed cost trackers may create a blindspot for your team. For example, it’s important to know that you’ve paid a general contractor’s invoice, but what was the payment for? Demolition? Millwork? If you don’t know, your line items need to be broken down into more granularity.
• As projects are about to wrap up, you often realize you’re going over budget. If you rely solely on comparing your budget to your actual paid-to-date numbers in order to assess your financial situation, you’re in for a painful surprise that will probably come too late in the game to fix. Why? Invoices take a while to process and it may look like you’re way under budget for much of the duration of your project. If that is happening to you, consider using more advanced cost-tracking methods that include anticipated costs.
• Change orders throw you for a loop. Change orders change everything, and they’re practically a given in most projects. You’ll probably see a lot of the change orders coming in advance. After all, if your contractor finds mold, you know you’ll have another invoice coming your way. However, knowing about a change order isn’t the same as accounting for it. Even if you’re still negotiating on price or still looking for a vendor, you need to update your cost tracker with a placeholder charge. If change orders are tripping you up, reformat your cost tracker to include pending costs.
• You don’t know if the costs on a current project are inline with costs from comparable past projects. Projected costs aren’t foolproof numbers, but your team should have a sense of the appropriate pricing range for a job based on similar projects that were completed in the past. If you’re working on your first elevator modernization project, would you know what range of costs you should expect? Truthfully, you probably wouldn’t. But can you figure it out by examining cost trackers from other elevator modernization projects that have been run in other buildings in your organization’s portfolio? Could you easily access those reports? Would the information be logged in a way that would allow you to make apples-to-apples comparisons on? If not, you need to consider standing up a shared cost tracking system with a standard structure and a consistent pricing language, like using CSI line items.
• More than a few unexpected costs arise during a project. Unexpected costs can include newly-issued government permit fees, discovering deviations from building codes or realizing you need additional insurance or warranties. These are costs that are unexpected not because they’re rare, but because you may not have encountered them before. It’s inevitable that you’ll reach the limits of your own knowledge and experience, but can you identify those issues before a project starts rather than when you’re well along? If not, your organization needs to enable more collaborative methods.
Mitigating the costs of bad tracking is a matter of setting up safeguards, enabling better information sharing and accounting for the unexpected inasmuch as is possible.