In last week’s blog on project portfolio management, I discussed the benefits of being able to compare projects across a diversified project portfolio. As I said in that blog, the use of project costs as a size measure only works when all projects are consistently tracking the same things. That includes labor.
If you're doing a fixed price project, it's essential to manage all costs - including labor - to ensure that you can deliver the project and make money. For example, if your outsourced contractors are lazy about submitting their time entries, you could end up in the red before you know it. Unapproved labor costs and labor costs that exceed the budget may not be reimbursed. If your company is dealing with limited cash flows, you need to be watching when large direct project outlays need to occur.
In the business world, there are many projects done in HR, marketing, and accounting, where there is no tracking of labor costs. When salaried employees are completing an in-house project, it's easy to skip the tracking and managing of labor costs. After all, you aren’t paying them specifically to do the project, so why should their costs be associated with the project? There are a few good reasons to do so.