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How do you track project expenses against the budget?

Writer's picture: BHADANIS Quantity Surveying and Construction Management Training Institute for Civil Engineers & Construction Professionals OnlineBHADANIS Quantity Surveying and Construction Management Training Institute for Civil Engineers & Construction Professionals Online

Tracking project expenses against the budget is like keeping a close eye on your spending during a vacation—you want to make sure you’re not blowing through your budget too quickly, so you can enjoy the entire trip without running out of money. In construction, tracking expenses is crucial to ensuring that the project stays on course financially. Let’s go through the process of tracking project expenses against the budget, using the example of a villa construction project in Bahrain.


1. Start with a Detailed Budget


Before you can track expenses, you need a well-defined budget. This budget should outline all the costs associated with the villa construction, including materials, labor, equipment, permits, and any contingencies for unexpected expenses.

Example: Suppose you’re building a 4,000-square-foot villa in Bahrain, and your budget includes:

  • Foundation Work: BHD 20,000

  • Structural Framing: BHD 50,000

  • Roofing: BHD 25,000

  • Interior Finishing: BHD 30,000

  • Landscaping: BHD 15,000

  • Contingency Fund: BHD 10,000

This detailed budget serves as your financial roadmap for the project.


2. Set Up a Tracking System


To effectively track expenses, you’ll need a system in place. This could be as simple as a spreadsheet or as sophisticated as project management software. The key is to have a system that allows you to record expenses as they occur and compare them against the budgeted amounts.


Example: You might set up a spreadsheet with columns for each budget category, including the budgeted amount, actual expenses, and the variance (the difference between what you planned to spend and what you’ve actually spent).


3. Record Every Expense


As the project progresses, it’s important to record every expense, no matter how small. This includes payments for materials, wages for laborers, and fees for permits. Keeping detailed records helps you stay on top of your spending and avoid surprises.

Example: Let’s say you’ve budgeted BHD 20,000 for foundation work, but the actual cost ends up being BHD 22,000 due to an increase in the price of concrete. You would record this expense in your tracking system and note the variance of BHD 2,000.


4. Monitor Variances


A key part of tracking expenses is monitoring variances—the differences between what you budgeted and what you’ve actually spent. A small variance might not be a big deal, but large variances can indicate potential problems that need to be addressed.


Example: If the roofing costs come in at BHD 27,000 instead of the budgeted BHD 25,000, you’ve got a BHD 2,000 variance. You need to understand why this happened—perhaps the cost of roofing materials increased or additional labor was required. Monitoring these variances helps you identify areas where costs are creeping up and allows you to take corrective action.


5. Regularly Review and Update the Budget


Tracking expenses isn’t just about recording costs as they happen—it’s also about regularly reviewing the budget and making updates as needed. This means looking at the big picture to see how the project is progressing financially and making adjustments if necessary.


Example: During your monthly budget review, you notice that both the foundation and roofing costs have exceeded the budget. To prevent further overruns, you might decide to reduce costs in other areas, like choosing more affordable interior finishes or delaying some landscaping work until after the villa is completed.


6. Communicate with the Project Team


Effective communication is essential for tracking expenses. Make sure everyone involved in the project understands the budget and the importance of sticking to it. This includes the contractors, suppliers, and any other stakeholders.


Example: If the construction team encounters an unexpected issue that could lead to additional costs—like discovering that the soil needs to be reinforced before laying the foundation—they should inform you immediately. This allows you to assess the impact on the budget and make informed decisions about how to proceed.


7. Use Reporting Tools


Generating regular financial reports is a great way to stay on top of expenses. These reports can give you a snapshot of the project’s financial health, showing how much has been spent, how much is left in the budget, and where any variances are occurring.


Example: You might generate a weekly report that shows the budget for each phase of the villa construction, the actual expenses incurred, and any variances. If you see that a particular phase is consistently over budget, you can investigate and take corrective action before it impacts the overall project.


8. Adjust as Needed


Sometimes, despite your best efforts, costs will exceed the budget. When this happens, it’s important to adjust the budget accordingly. This might mean reallocating funds from one part of the project to another or finding ways to cut costs elsewhere.


Example: If the interior finishing costs are higher than expected, you might decide to use some of the contingency fund to cover the overrun. Alternatively, you could look for less expensive finishing materials that still meet the quality standards for the villa.


Real-World Example: Villa Construction in Bahrain


Let’s say you’re managing the construction of a luxury villa in Bahrain. You’ve budgeted BHD 150,000 for the entire project. As the project progresses, you carefully track every expense, from the foundation work to the final landscaping. Midway through the project, you notice that both the foundation and roofing costs have exceeded their budgets. By monitoring these variances, you decide to reallocate some of the contingency funds to cover these overruns, ensuring that the project stays on track financially.

You also communicate regularly with the construction team, making sure they’re aware of the budget and any constraints. By the end of the project, thanks to careful tracking and regular budget reviews, you’ve managed to complete the villa only slightly over budget, with no major financial surprises.


Project Expense Tracking Template

Budget Category

Budgeted Amount (BHD)

Actual Expense (BHD)

Variance (BHD)

Reason for Variance

Action Taken

Foundation Work

20,000

22,000

+2,000

Increased cost of concrete

Reallocated funds from contingency

Structural Framing

50,000

48,000

-2,000

Efficient use of materials

No action needed

Roofing

25,000

27,000

+2,000

Additional labor required for installation

Negotiated with contractor for reduced labor rates

Interior Finishing

30,000

28,500

-1,500

Savings on bulk purchasing of materials

No action needed

Landscaping

15,000

14,000

-1,000

Efficient design reduced material use

No action needed

Contingency Fund

10,000

5,000

-5,000

Used to cover foundation and roofing overruns

Reduced remaining contingency by reallocating funds

Explanation of Columns

  • Budget Category: The specific area of the project where expenses are being tracked.

  • Budgeted Amount (BHD): The original budgeted amount for that category.

  • Actual Expense (BHD): The actual amount spent.

  • Variance (BHD): The difference between the budgeted amount and the actual expense (positive if over budget, negative if under budget).

  • Reason for Variance: Explanation of why the variance occurred.

  • Action Taken: Any steps taken to manage or address the variance.

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