Process flows
Processes and Reports
The cost management capability supports the capture of actual labor and non-labor costs for products, programs, and projects. Costs may be rolled up from the financial plan, automatically captured from timesheets, or entered manually. Cost management and analysis is performed through the tracking and comparison of costs to date, forecasts to complete costs, and plan to actual for variance reporting. By allowing financial managers to track the current performance of costs against the forecasted budget, this information can be used to make informed decisions and manage exceptions.
Video: Cost Management Demo
Cost Management Process Steps
Cost management process flow
| Process Step | Description |
|---|---|
| Capture actual costs |
Update the financial plan with the actual costs incurred in a historical time period to capture an accurate representation of the expenditures. This information can be used as a comparison against the budget or previous baselines to track variances against the estimated spend. Costs can be loaded from the plan, rolled up, or captured directly on the financial plan. Costs may include:
|
| Manage forecasted resource effort and costs | Ensure the financial plan accurately reflects the estimated resource costs and effort required. This up-to-date cost and effort information helps managers understand the impact of the pending resource costs on the portfolio. Make sure that resource demand and assignments information is current to ensure that the financial plan accurately represents the forecasted costs. |
| Manage forecasted non-resource costs | Ensure the financial plan accurately reflects the estimated non-resource costs. This helps provide an accurate forecast of the predicted expenditure. |
|
Manage forecasted benefits and revenue |
Ensure the financial plan accurately reflects the estimated benefits to provide an accurate forecast of the predicted revenue. Update the benefit costs which were previously populated in the original estimation or previous rounds of reforecasting directly into the financial plan to reflect the latest and most accurate forecast. These amounts should continue to be associated with the appropriate benefit sub-account information depending on your configuration to help categorize the revenue and allow portfolio-level summarization of the types of benefits. |
| Monitor financial performance |
Track the current performance of the financials against the original budget and use this information to make informed decisions and manage exceptions. Managers can use financial versions to compare different financial versions over time. For example, to monitor the financial performance against the original budget and earlier snapshots, the current actual and forecast data in the financial plan can be compared against previous baseline versions. |
Cost Management Process Steps
Cost management process flow
| Process Step | Description |
|---|---|
| Capture actual costs |
Refresh the financial plan with the actual costs incurred to capture an accurate representation of the project's expenditures. This information can be used as a comparison against the project budget to track variances against the estimated spend. Costs can be loaded from timesheets or loaded from manual entries on the schedule (work breakdown structure). Labor costs from timesheets are calculated based on defined labor rates and time entries. For more information: |
| Manage forecasted resource effort and costs |
Ensure the financial plan accurately reflects the estimated resource costs and effort required to deliver the project or program. This up-to-date cost and effort information helps managers understand the impact of the pending resource costs. Make sure that resource demand and assignments information on the schedule are current to ensure that the financial plan accurately represents the forecasted costs. For more information: |
| Manage forecasted non-resource costs |
Ensure the project financial plan accurately reflects the estimated non-resource costs required to deliver the project or program. This helps managers provide an accurate forecast of the predicted expenditure. For more information: |
|
Manage forecasted benefits and revenue |
Ensure the project financial plan accurately reflects the estimated benefits to provide an accurate forecast of the predicted revenue. |
| Monitor financial performance |
Track the current performance of the financials against the original budget and use this information to make informed decisions and manage exceptions. |
Best Practices
Build a single source of truth
Organizations should strive to standardize their financial processes so that the platform becomes the single source of truth for tracking all costs and benefits. When everyone is using the same processes and categories to define costs and benefits, you’ll be able to make accurate decisions and understand the financial status of each project and the entire portfolio.
Maintain accurate data
Financial plans need to be accurate so appropriate decisions can be made. This includes the original project budget and the ongoing tracking of actuals against the budget. For actual costs and benefits that are not automatically loaded, managers should ensure they are updating the financial plan in a timely fashion and with the most current information to enable accurate analysis of how projects are performing to plan.
Establish clear cost controls in planning
Cost control is established to ensure investments stay on track, do not experience cost-overrun, and maximize revenue and benefits. During planning investments should have accurately defined fixed versus variable costs, cost of labor and materials and the expected ROI. Within execution variance tracking of actual costs to plan, having change control established, and any other cost controls in place will allow for easily identifying areas of overspend to which strategic decisions can then be made on the investment portfolio.
Accurately track labor costs
Labor costs are one of the highest expenses organizations contend with. Organizations can ensure their labor costs are accurate by: defining resources as employee or contractors; having specific rates set up by resource type, role or named individual which are time-boxed; allowing for rate overrides to be set when needed; and correctly tracking added cost for overtime.
Understand contractor and employee ratio and costs
Organizations should periodically review the ratio of contractors to employees and the related cost to maintain the "happy balance" of labor cost savings and peak functionality.