Estimated vs actual costs—how do yours stack up?
If you’re not asking that question after each project, you’re putting your business at risk—of losing money, scoping jobs incorrectly, missing deadlines, and more.
How do you define estimate vs actual costs?
Put simply:
- Estimated costs are what you predict you’ll spend on a project, while
- Actual costs are what you really end up spending.
Estimated vs actual costs are often used in accounting, where prices are calculated before and after transactions so companies can predict gains and losses to make better decisions. But in reality, every business and department should be tracking and using this valuable data for projections, forecasting, budgeting, and more.
4 reasons to track estimated vs actual costs at your company
1. Protect profits
If you aren’t tracking estimated vs actual costs, how do you know you’re on track to make a profit? Sure, you can wait until the end of the month and see if you’re in the red or in the black, but that’s no way to run a successful business. The only way to survive is to turn a profit, and you can’t do that if you’re spending more than you’re earning. By tracking estimated vs actual costs, you’ll know where profitability stands on a daily basis, and whether you’re selling your services at the proper rate to thrive.
2. Improve job costing
Job costing is an essential process that will help you predict—quickly and clearly—how much time a particular job or project will take and what your costs will be, including labor, overhead, and expenses. Using historical data will help you establish a true estimate of the time required to complete a certain type of job or project. And the more you do it, the easier and more accurate your projections will become. Done correctly, job costing will allow you to not only tighten up your budget but also to better plan for all your company’s needs, from staffing to benefits to overhead.
3. Keep projects on schedule
If you’re not tracking each job estimated vs actual costs, you’re less likely to know when a project is at risk of slipping off of schedule. If your estimates are low and your vendors request more resources to complete key steps, you’ll be on the hook to make it work whether you’re prepared to spend that money or not. At best, that means scrambling to move money around; at worst, it means stopping a project completely until you have the cash in hand to get it done. Either way, it derails your project, which can cause problems ranging from unhappy customers to unfulfilled contracts.
4. Improve customer, employee and stakeholder satisfaction
Nothing is more frustrating to a customer or client than being asked for more money or more time for a job they thought was properly scoped—and that frustration isn’t unique to customers. Asking stakeholders to bear with you while you play catch-up or asking employees to work overtime because you failed to properly scope something is a recipe for disaster. By getting your house in order regarding estimated vs actual costs, you’re far less likely to have to deliver bad news about budgets or schedules. And that means happier customers, staff, and stakeholders.
How time tracking can help you track estimated vs actual costs
One of the most important things time tracking does is give you instant access to historical and real-time data. That can help you see gaps in estimated vs actual costs and allow you to make adjustments as needed to project your outcomes.
With a solution like Time Tracker, you can:
- Use detailed reports to look at time spent on similar projects by task, employee, or contractor before creating estimates
- Know in real-time if your project is going over budget and where the problem is occurring
- Submit change orders for labor and materials within the system for those unforeseeable but necessary changes
- Automatically send alerts to remind employees to track or submit their hours so you know where you stand each day
Most importantly, if you’re a business that works on a project basis, you can now easily track time against project estimates within Time Tracker. You can set up projects to include estimated time to complete a job based on a total hours, or by specific project activities. Learn all about it here.
Make Time Tracking Easy & Engaging For Your Employees