Understanding Project Costs in a Simple Way

3 min readJul 17, 2017

Estimating and controlling project costs can be tricky. And because it is usually hard to keep them within the initial budget, managers need an efficient tool to monitor the costs at any point in time.

To be sure, there are plenty of tools on the market today. Some businesses solve this problem by making use of large-scale software solutions, such as Microsoft Project and the like. Needless to say, this doesn’t work for everyone, so we suggest to look at a cheaper and simpler way to track costs.

Let’s start with defining the cost types. Generally speaking, there are four major types of costs:

  • Preplanning costs. These are the costs incurred before the actual launch of the project. They can include hiring new employees and staffing the project team, conducting market research and other preparatory work. Consultancy and insurance fees also fall under this type.
  • Material costs. They include the costs of any materials required to build a product or complete a project. For example, if you were to make a chair, you would need to buy pieces of wood, nails or screws, glue, and paint. In the IT industry, material costs can include buying third-party software, servers, storage space, and so on.
  • Human resources. The largest portion of these expenses are payroll costs for all employees working on the project. Any salary should be taken into account here, regardless of the employee’s role, level, or tenure. Very often, salary calculations are based on employee’s monthly performance, for example the number of hours worked.
  • Operating costs. Any costs incurred to ensure the daily operations of a business are operating costs. For example, the office rent, legal fees or office supplies.

Depending on the industry, labor costs can make up to 50% of the overall project cost. Often they are the most challenging to control. Yet there is a convenient way to estimate and manage them: employee timesheet.

Timesheets offer multiple ways to organize the process. What you need at this point is detailed project planning. First, start with defining deadlines and time budget for your project. Keep in mind that it’s easier to plan when you break down the project into smaller tasks or steps, and define estimates for each task.

During this step, you can also specify your estimated costs, or set up an alert to inform you when the task budget reaches a certain threshold. This will help you stay proactive in managing the costs.

Next, decide who will be working on which part of the project and assign the tasks accordingly. Once everything is set up, your staff can start tracking their hours using the timesheet.

Throughout the entire project lifecycle, managers will now have valuable data at hand. If we consider the usage convenience, it certainly pays off to choose a timesheet application with built-in reports. They will provide an insight into the current project cost and your team’s progress. The information on project costs will remain valuable even after the project is completed, since managers will be able to leverage historical data in order to make estimates for future projects.

Project costs don’t constitute a single lump sum. On the contrary, they are built up of several cost types, with human resource costs making up the bulk of the total sum. A simple way to monitor these expenses is to keep timesheet software.

Timesheets are instrumental in estimating and monitoring payroll costs. With detailed information on spent hours and deadlines, they also provide important benchmarks for evaluating the project progress.




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