1. Cost and Revenue Estimation:

Effective project budgeting is built on cost estimation, which enables businesses to plan and allocate resources and determine whether the Return on Investment (ROI) is sufficient to justify the project:

Staffing Costs: This covers employee salaries, benefits, as well as contractor or consulting fees.

Operating Costs: Expenses apportioned to the project, including HR and back office are entered under operations.

Material Costs: All expenses related to supplies, materials and other resources needed to complete the project are included.

Equipment/Repair Costs: These include the purchase price, as well as ongoing maintenance, repair and depreciation costs.

Estimate Revenues & Cost of Financing: This takes into account the cost of financing, as well as timings for all cash-flows.


2. Real-Time Monitoring:

Real-time monitoring means ensuring costs are on track and do not exceed the allocated budget. It also means tracking and handling unexpected changes:

Adaptation to Delays: Project delays, due to human errors, logistics issues or dependencies, may lead to higher labor or storage costs than initially budgeted.

Staff Turnover: Hiring replacements incurs costs to find, select, onboard and integrate the new hires to the point of full levels of productivity. This may push forward the start dates of certain work items, causing additional hidden costs due to rescheduling.

Tracking All Expenses: This entails careful tracking and documentation of all project-related costs, from labor and materials to overhead fees and any unforeseen financial expenses.

Cost of Financing: Monitor fixed and variable interest rates on all financing. Variable-rate loans will incur additional costs when interest rates rise.


3. Margin & Mark-Up Monitoring:

Monitoring margins and markups matters to ensure projects remain profitable.

Understanding Profit Margins & Mark-Ups: Both profit margin and mark-ups use revenue and costs in their calculations. The main difference between them is that profit margin refers to sales minus the cost of goods sold, whereas markup means the extra amount charged, over the purchase price, to arrive at the sales price.

In the case of fixed price projects, when raw material or staff costs increase, this might place undue pressure on budgets and in some cases could wipe out all profit margins.