Project Costing

What is project costing?

Project costing tracks all costs associated with a specific client engagement or project. It captures labor costs from time entries, direct expenses billed to the project, and allocated overhead. Project costing reveals true profitability by showing what each engagement actually cost to deliver, not just what it billed. This information drives pricing, staffing, and client decisions.

Components of project cost

Direct labor is time multiplied by the loaded labor rate, not the billing rate. Direct expenses include travel, materials, and contractor costs. Allocated overhead distributes firm-wide costs like rent and technology across projects. The sum represents total cost. Compare against revenue to determine margin. Most firms focus heavily on labor since it dominates service delivery costs.

Using project costing data

Compare planned cost to actual cost for budget management. Analyze profitability patterns across project types, clients, or team members. Identify engagements that consistently underperform. Inform future pricing by understanding actual delivery costs. Project costing connects operational decisions to financial outcomes in a way that aggregate financials cannot.