With MS Project How do you create budgets and track costs against them?

Control and Manage Costs Established in the Project Budget Tasks

To best track costs, you should first create a budget (budget: The estimated cost of a project that you establish in Project with your baseline plan.) by creating and entering cost values for budget resources (budget resource: A budget resource captures the maximum capacity for a project to consume money, work, or material units for a project. Budgets can only be applied at the project level by assigning a budget resource to the project summary task.) that are assigned to the project summary task (project summary task: A task that summarizes the duration, work, and costs of all tasks in a project. The project summary task appears at the top of the project, its ID number is 0, and it presents the project's timeline from start to finish.). You can then identify other resources and task costs that you want to track and measure against the budget resources. You can enter pay rates (pay rate: Resource cost per hour. Project includes two types of pay rates: standard rates and overtime rates.), per-use (per-use cost: A set fee for the use of a resource that can be in place of, or in addition to, a variable. For work resources, a per-use cost accrues each time that the resource is used. For material resources, a per-use cost is accrued only once.) and fixed (fixed cost: A set cost for a task that remains constant regardless of the task duration or the work performed by a resource.) costs for tasks (task: An activity that has a beginning and an end. Project plans are made up of tasks.), resources (resources: The people, equipment, and material that are used to complete tasks in a project.), and, if necessary, assignments (assignment: A specific resource that is assigned to a particular task.). Then, specify the estimated work (work: For tasks, the total labor required to complete a task. For assignments, the amount of work to which a resource is assigned. For resources, the total amount of work to which a resource is assigned for all tasks. Work is different from task duration.) or duration (duration: The total span of active working time that is required to complete a task. This is generally the amount of working time from the start to finish of a task, as defined by the project and resource calendar.) for tasks and assign resources to the tasks.

Only when all of these steps are complete can Project 2007 calculate the total estimated costs for the project. You might then want to refine your estimates. When you're done, you can categorize and group all resources to compare them to the budgeted costs. You can also set a baseline with the budgeted costs, and use it to compare with actual costs (actual cost: The cost that has actually been incurred to date for a task, resource, or assignment. For example, if the only resource assigned to a task gets paid $20 per hour and has worked for two hours, the actual cost to date for the task is $40.) as your project progresses.

After the project starts, you update task progress — the amount of work done on tasks or the percentage of the tasks that are complete. Project 2007 calculates costs for you based on task progress.

 Note   You can also choose to turn off automatic calculation of costs and enter actual costs yourself, in addition to task progress.

By combining the actual costs of completed work with the estimated costs for remaining work (remaining work: The amount of work, in terms of a time unit such as hours or days, that is left to be completed on a task. This is calculated as follows: Remaining Work = Work - Actual Work.), Project 2007 calculates scheduled (scheduled or current cost: The latest cost of tasks, resources, assignments, and the entire project, which is displayed in the cost field as cost or total cost. It is kept up to date with cost adjustments that you make and with the project's progress.) (projected) costs. More importantly, it calculates the difference between the scheduled and baseline costs. This difference, or cost variance (CV: The difference between the budgeted cost of work performed [BCWP] on a task and the actual cost of work performed [ACWP]. If the CV is positive, the cost is currently under the budgeted amount; if the CV is negative, the task is currently over budget.), tells you whether your project is on budget.

You can do simple cost tracking by viewing the actual and scheduled (projected) costs for tasks, resources, assignments, and the project.

If you've created a budget through a baseline, you can do more extensive tracking by comparing the actual and scheduled costs against the baseline costs.

To determine whether you're on budget or not, you can view the cost variances between scheduled costs and baseline costs. For example, if a task is budgeted to cost $50, but the task is half-way done and already costs $35, the scheduled cost is $60 (the $35 actual costs to date, plus the $25 expected costs for the remaining work on the task). The cost variance is $10 ($60 of actual cost minus the $50 of budget cost).

By monitoring cost variances regularly, you can take steps to make sure that your project stays close to its budget.

 Note   You can only view cost variances if you've entered initial costs and saved a baseline. For instance, if you didn't enter pay rates for a resource before you saved the baseline, you won't be able to view cost variances for that resource.