How to Manage Project Costs in Microsoft Project

Edited 3 weeks ago by ExtremeHow Editorial Team

Microsoft ProjectCost ManagementBudgetingProject ManagementWindowsFinancePlanningTrackingControlResourcesEfficiency

Managing project costs is a critical aspect of any project manager's role as it directly impacts the financial success of the project. Using Microsoft Project, a widely used project management tool developed by Microsoft, you can effectively plan, track, and control project costs. Below is a comprehensive guide to managing project costs in Microsoft Project, detailed in simple terms so that you can understand and apply these principles to your projects efficiently.

Understanding the basic concepts

Before we dive into cost management in Microsoft Project, it's essential to understand some basic concepts:

• Project Costs: These are the total costs that are estimated to be incurred during the life cycle of the project. These include labor costs, material costs, equipment costs, and other resources that require financial expenditure.
• Cost Management: This includes planning, estimating, budgeting, financing, funding, managing and controlling costs so that the project is completed within the approved budget.
• Microsoft Project: It is a software product developed by Microsoft, specifically designed to help project managers develop plans, allocate resources to tasks, track progress, manage budgets, and analyze workloads.

Set up cost management in Microsoft Project

1. Define and understand resources

Start by identifying all the resources needed for your project. Resources can be people, equipment, or materials that are needed to complete project tasks. Each of these resources will have a cost associated with it:

• Work resources: These are usually human resources that have a cost associated with them based on an hourly rate. For example, you may have an engineer who charges $100 per hour.
• Material resources: These include consumables or items that are used up as the project progresses; the cost is linked to the unit of material used.
• Cost resources: These are resources assigned to a task that cost a fixed amount (such as travel costs, license fees, etc.).

2. Enter resource costs

After you've defined your list of resources, you can now enter cost information:

1. Switch to Resource Sheet view in Microsoft Project.
2. For each resource, specify the cost in the Standard Rate or Overtime Rate field as appropriate.
3. If applicable, assign cost resources to specific tasks to reflect estimated expenses.

3. Allocate resources to tasks

Once your resources are set up with cost information, assign them to tasks in your project.

1. Switch to the Gantt chart view. Here, tasks are scheduled with a deadline, and you can assign resources to each task.
2. For each task, use the Task Information dialog or the Assign Resources button to select the appropriate resources.

Estimating project costs

Once resources are allocated, Microsoft Project automatically calculates the cost for each task based on the resource information.

1. Review of work cost

To see the calculated cost for each job:

• Switch to Task Usage or Resource Usage view.
• In any view, costs will appear in the Cost column next to each task or resource.

2. Calculate the total project cost

To get the total project cost, add up all task costs or switch to the Project Summary task at the top of the task list in Gantt Chart view for a quick overview.

Creating a Budget in Microsoft Project

1. Determine the baseline cost

After you finalize your cost and schedule estimate, save a baseline to preserve the details of the original plan. This is important for cost comparisons in the future:

1. Go to Project > Set Baseline > Set Baseline again.
2. Select the current project and click OK to save the baseline.

Tracking and controlling project costs

1. Update project status

In order to manage costs effectively, it is essential to track the progress at regular intervals:

• Update tasks with actual start and end dates.
• Enter the actual cost or work hours actually completed.
• Use Update Project under the Projects tab to reflect any changes.

2. Compare actual costs to the baseline

To understand how well you're sticking to the budget, you need to examine cost variances against the baseline:

• Switch to the Tracking Gantt view, where you can see the difference between planned and actual project progress.
• To view the cost performance, go to the Cost table in the View tab to see detailed cost variance information.

Advanced cost management features

1. Using cost reports

Microsoft Project provides a variety of reporting tools to help you analyze cost data:

• Access the built-in cost reports by clicking the Reports tab and selecting from options such as Cost Overview or Earned Value Report.

2. Using Earned Value Analysis

Earned Value Management (EVM) is a project management technique that integrates scope, schedule, and cost variables to assess project performance:

• Make sure your project is properly grounded and its status is up to date.
• View earned value metrics by going to the Earned Value table in the View tab.
• Analyze key metrics such as cost variance (CV), schedule variance (SV), and cost performance index (CPI).

Tips for improving Cost management

Improving cost management in Microsoft Project requires attention to detail and proactive management. Consider these tips:

• Regularly update actual costs and statuses to ensure timely identification of deviations.
• Maintain detailed documentation of all cost transactions and resource allocations for better auditing.
• Review and optimize resource allocation to reduce unnecessary expenditure.
• Hold regular status meetings to discuss project financial issues and corrective actions.
• Involve stakeholders in the financial assessment for additional information and support.

Conclusion

Efficiently managing project costs using Microsoft Project requires understanding the setup and manipulation of resources, a thorough estimating and budgeting process, continuous tracking, and a keen eye for variance analysis. While the platform provides a number of sophisticated tools and reports to help with this task, ultimate success in cost management depends on diligent attention to project details, regular monitoring, and proactive adjustment of resources and activities. By leveraging the full scope of Microsoft Project's cost management capabilities, project managers are equipped to complete projects on time and within budget, contributing to overall project success and satisfaction.

  Share This Article

If you find anything wrong with the article content, you can request an update