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Tax & AccountingOctober 29, 2020

The Hidden Costs of Projects

Every project has a known or starting cost. Creating a budget is a natural part of any project. However, all too often, additional unexpected costs will creep up, not only within the known project costs but also as opportunity costs and resource costs. These hidden costs can make the difference between success and failure – and between project completion and abandonment.

How do you prevent projects from being overwhelmed by unexpected costs? This is where project management training and dedicated project managers can save the day.

Project Costs

The known project cost can be measured in time and dollars – the combination of which is a steep sunk cost if the project doesn’t deliver its expected value. Hidden costs kick in as projects go over budget or fall behind schedule, possibly resulting in canceling the project. Even if the project goes to completion despite cost overruns and delays, the hidden cost can be significant. Trained project managers have the tools to minimize cost and time overruns, freeing up resources for additional projects.

Opportunity Costs

Then there are the opportunity costs, the cost of not investing in another project. How do you know the project you’re working on will deliver the most value to your market? If you’re investing in the wrong projects and your competitors are investing in the right projects, then you’re at a disadvantage. Consider Blockbuster and Netflix: Netflix invested in cloud content, and Blockbuster didn’t. Netflix won.

Resource Costs

Resource costs are why your staff should stay focused on their areas of expertise and work at their skill or license level. While you can train your people to be project managers, there’s a downside to that strategy to having them handle project management in addition to their day jobs. When your staff has to split their time between daily duties and project management duties, their focus is compromised and may lead to an overall decrease in work quality. Dedicated project managers can focus their time on ensuring the project delivers the intended value.

As an example of how project managers affect a process, consider an accounting firm’s process for preparing client tax returns. The first step is document transfer from the client to the staff or an administrator, possibly through multiple channels and deliveries. The first potential problem arises immediately - who knows if the firm has all of the necessary client information?

Similar questions arise for the next steps. Client documents are digitized and sent to the preparer. The preparer goes back to the administrator for missing documents, who then contacts the client. After several iterations, the preparer has what they need and prepares the taxes, sending it on to the reviewer. A reviewer checks the tax returns, possibly sending it back for revisions. The tax return finally goes to the partner; because the partner lacks clarity into the process, they send back questions and request additional information, repeating the review cycle. Once the partner signs off, the previously mentioned handoffs are repeated as the tax return is assembled per instructions and delivered to the client.

That’s just one tax return - consider the volume of handoffs and coordination over the course of a busy tax season for an accounting firm. Then add in the other projects handled throughout the year, and the project manager shines – they can make sure the firm’s projects have the fewest handoffs and that the handoffs take the least time possible throughout the project lifecycle.

When organizations have trained project managers, they gain a focus on end-to-end processes that can help to mitigate the hidden costs that can derail projects. When roadblocks and unexpected costs creep up, trained project managers have the tools and capacity to fix it. They know different solutions may apply, depending on the situation. Because they are focused on all of your projects, not just the one or two that they lead, project managers have visibility into how all of the solutions work together.

Having a trained project manager helps reduce hidden costs that pop up when you least expect it while ensuring the most efficient and effective use of the organization’s resources.

Interested in learning more about how project management tools and training support organizational growth? Download our whitepaper to learn more.

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Hillarie Diaz, Author for Tax & Accounting

As a content creator for Wolters Kluwer’s Professional Market, Hillarie focuses on a wide range of accounting and finance technology space topics. As an accountant who enjoys writing, she brings over a decade of accounting experience to her writing.