We need some way to keep our project team accountable to the project sponsors and stakeholders in status reports and meetings, but we don't want to go crazy doing it. How can I track our actual project costs and compare them to the project budget in a way that makes sense?
Tracking actual project costs and using that information to help keep teams' accountable with sponsor and stakeholder objectives depends upon the level of detail developed in planning and financial systems in your company. Many industries and government programs use Earned Value methodology to do this. Earned Value systems calculate variances in schedule and cost for both budgeted and actual performance. However, this level of detail isn't appropriate to all projects or organizations. Unless you have regulatory or contractual demands that dictate measurements, we suggest you to keep thing simple to start, and let the situation drive further complexity.
Our Project Budgets and Cost Tracking can help you track actual spending against the project budget at varying levels of detail. A template like this one will provide a report of actual costs vs. budget, projections of additional funds required to complete the project, and the estimated variation between budget and costs when the project is complete. (The exact reports you develop will depend on how the actual costs are tracked and reported by Finance.) This will provide a financial assessment of project performance, but not the whole story about project progress.
The greatest value to the project team, stakeholders, and sponsors comes from a report on progress toward objectives, including but not limited to the financial trend (actual spending vs. budget). Associating the budget with project milestones and/or deliverable development provides a baseline to assess some degree of "value" earned by project spending. Our template for Tracking with Visible Deliverables, which illustrates how to track project progress using elements that can be observed or measured, provides one approach for this. Although the examples in the template focus on project schedules, shifting to budget and cost tracking is straightforward. Keep in mind that it's always best to have quantitative elements (completed units that can be counted, measured, seen, or touched) to measure progress; qualitative measurements (draft, halfway, "almost done") can easily lead to another variation on the all-too-common "80% Done Syndrome," where 80% of the budget has been spent, but only 20% of development is complete.
To report spend performance and progress, use an easy-to-read and maintain status report, one that meets the needs and expectations of stakeholders and sponsors without demanding hours of preparation. Our Executive Summary of Project Status/Risks, is one example of a straightforward summary of project progress, captured alongside cost and schedule performance to plan.