As a project manager, you must control every aspect of your projects. It’s not just about managing deadlines, risks, scope, stakeholders, planning, quality, and communications. Another key area that demands your attention is the financial side of things, specifically budget and cost tracking.
When discussing budget tracking, we refer to monitoring current project costs against the predetermined budget throughout the project’s duration. Cost tracking relates to monitoring and recording all expenses associated with a project throughout its lifecycle.
Among many types of costs, we can differentiate Direct and Indirect costs, such as CAPEX, which we have already defined, and OPEX, which directly affects our endeavors.
As CAPEX is the counterpart of OPEX, let’s start there, establishing the differences between them and, later on, defining our main subject: OPEX. That difference resumes with the duration of the benefits they generate. Operating Expenses (OPEX) provide short-term benefits and are recorded in financial statements when incurred. In contrast, Capital Expenditures (CAPEX) offer long-term benefits and are recorded as assets on the balance sheet and are depreciated over their useful life. Learn more about this difference.
Then…
What’s OPEX?
Operating Expenses (OPEX) are shorthand for the ongoing costs incurred during a business or project’s regular operation. These are essential for maintaining day-to-day activities and ensuring the smooth functioning of a project.
Why is OPEX essential for projects?
It encompasses all the day-to-day operational costs required to keep a project running smoothly, ensuring better budgeting, resource allocation, and overall project success. More specifically, it helps in:
- Budgeting and cost control, given its good practices, avoid overspending, ensuring there’s a realistic budget in hand, also allows to identify where costs can be reduced.
- Analyzing it provides the ability to use resources efficiently, assess how well they are being used, and maintain the project’s financial health, ensuring it remains profitable.
- It ensures that critical operational areas are well-funded, prioritizing spending on activities that directly contribute to the project’s success.
When to classify expenses as OPEX
Costs should be classified as such when an asset is expected to be used for up to one year. They will not generate economic benefits for the company during its useful life, and it doesn’t have a significant cost.
Employee salaries and benefits, rent, utilities, supplies, maintenance, advertising, marketing, and similar expenses can be classified as OPEX.
Sometimes, classifying OPEX costs can be subjective, so we suggest consulting a financial professional.
6 Benefits of monitoring OPEX when tracking projects:
Among the benefits of keeping these costs controlled to keep a project’s overall financial health and operational efficiency, we mentioned:
- An enhanced operational efficiency, streamline processes to optimize well-funded routine processes, ensuring that every cent spent contributes to productivity.
- Cost control and predictability ensure efficient resource allocation by enabling projects to stick to budgets and highlighting areas of overspending or potential savings. They also allow accurate financial forecasting and planning, leading to better decision-making.
- Improves financial health by controlling cash flow management, which is critical for short-term operations, enhancing profitability, and the decision-making process and strategic planning.
- It allows for better risk management through regulatory compliance, ensuring adherence to regulatory requirements, identifying possible economic fluctuations, and being ready to face them.
- Overall, it allows a competitive advantage. At the same time, it operates at a lower cost, offers competitive pricing, reinvests savings into growth, and responds swiftly to market demands and customer needs.
- It fosters sustainable operations without facing financial strain and drives long-term business success.
The list of benefits can go on and on, given that establishing and centralizing effective OPEX management is critical for enhancing operational efficiency. By controlling and optimizing these costs, businesses can achieve better profitability, scalability, and a competitive edge in the market.
Tracking these types of costs is essential. That’s why several software solutions are used to manage and track budgets and costs, including Microsoft Dynamics 365, SAP, Expensify, Anaplan, Tableau, Power BI, and even Google Sheets and Excel Custom Dashboards, although those solutions only cover cost management.
Suppose you already use Jira to manage projects and tasks. In that case, Jira Software can be customized as you need; adding apps such as Budgety allows you to track project-related OPEX and manage budgets.
Choosing the right software to track OPEX depends on the business’s needs, its size, and the complexity of its operations. If you’re interested in going more profound about the financial tracking of your projects, we recommend you keep reading:
