If you work in any project management-related field, you know that focusing on project financial control is critical to delivering products or services efficiently. Here's when managing the project's Cost of Goods Sold (COGS) and overall budget is crucial to ensure profitability. In this blog, we'll explore how an efficient approach to project management can reduce costs and improve COGS.
COGS can be a critical metric in the project management realm (even when it's not directly associated) in the form of direct costs, when those projects managed are involved in producing a product or service. Effectively managing COGS helps project managers control expenses and maximize profitability, and choosing the right software tooling will push that financial tracking process, allowing teams to manage budgets, link costs to specific tasks or issues, and refresh real-time cost data.
Although COGS is not common in project management (terms like direct costs or execution costs are more common, as stated before), a similar methodology can be applied to calculate a project's direct costs. It's a way of understanding the cost of resources consumed during a project's life cycle.
Project managers can easily track COGS, optimize expenses, and ensure projects are delivered within budget, ultimately enhancing financial control and project success. Let's get in-depth about this crucial term:
COGS, or Cost of Goods Sold, represents the direct costs incurred in producing or purchasing the goods a company sells during a specific period. This includes costs such as raw materials, direct labor, and manufacturing overhead directly tied to production.
COGS plays a significant role in determining a project's profitability. Project managers can make informed decisions about resource allocation, pricing, and project timelines by monitoring COGS.
The Cost of Goods Sold refers to the direct costs of producing goods a company sells. To calculate it, the COGS formula is:
COGS = Beginning inventory + Purchases - Ending inventory
In this formula:
In practice, this could look like this, assuming the following values:
COGS = $30,000 + $50,000 - $20,000 = $60,000
The Cost of Goods Sold by this company for an X timeframe would be $60,000
As COGS is primarily vital for businesses, tax authorities, and financial professionals, sometimes it's forgotten it can be relevant for project management in the shape of direct costs, given that financial health assessment, decision-making, and compliance play a significant role when managing projects, especially in sectors like software development or manufacturing. Tracking COGS gives businesses visibility into whether their costs are in line with their revenue goals or not.
Tracking and controlling COGS is a key strategy in preventing budget overruns. It enables the efficient allocation of resources, ensuring project profitability and, ultimately, the longevity of the work. COGS is good for project managers who monitor the direct costs associated with product or project development, such as materials, labor, and production expenses.
Before getting more in-depth with what COGS, let's threshing what COGS means to project management:
Having these types of costs defined will help in different performance areas within project management, as it impacts budgeting, decision-making, performance tracking, and stakeholder communication. By effectively managing and analyzing COGS, it's possible to enhance project outcomes and organizational profitability. More specifically, it can help with the following:
That's why controlling these direct costs should be very relevant to any person within the project management realm. This will enhance profitability and efficiency in operations. Regular assessment and adaptation of these strategies will help sustain improvements over time.
Besides, for service projects (consulting, software development, marketing, etc.), it's possible to adapt the COGS idea to calculate the Cost Of Services Sold (COSV) or direct costs, which are the cost of resources (labor, tools, materials) allocated to the delivery of the service or completion of a project.
At this point, the “Where” becomes the question: Where to track these costs?
Nowadays, there is a wide range of software solutions for project management. However, Jira remains at the top-of-mind in that area regarding project tracking and task management. That's why you're more likely to use this software if you're a project manager.
Once there (in Jira), managing COGS effectively requires a system that can track the costs of resources, time spent, and materials referred to it directly (there's no native function for this). What better way than adding an app that provides such commodities in the same place where you manage your projects?
As mentioned, overlooking critical budget data can lead to increased project costs and, in turn, lower margins. As a project manager, being cautious and attentive about these is crucial to avoid such outcomes.
The best way to learn about this new dimension in Jira could be Budgety, a comprehensive app available in the Atlassian Marketplace that integrates seamlessly with Jira to manage project budgets, track costs and expenses in real-time, and associate those to the information you're already tracking in Jira.
Budgety allows financial control to be validated within the context of related projects. This enhances project management by keeping teams aligned on financial goals while maintaining the visibility of their spending. It offers an intuitive interface to manage COGS (as direct costs) within Jira.
By integrating Budgety with Jira, teams can enhance their project management in several ways:
Efficient project management is more than tracking tasks and milestones —it's about ensuring that the work's done within budget constraints while optimizing costs like COGS. By integrating apps like Budgety into Jira, you can gain control over every aspect of your projects, such as budgets, reduce costs, and ultimately improve profitability.
Whether you're managing software development projects, manufacturing workflows, or service-based projects, Budgety is a versatile tool for proactively managing budgets and tracking costs. It will help you deliver better results and avoid financial pitfalls regardless of the project type.
By following this advice and taking advantage of Budgety features, you'll leap into optimizing business and project management financial outcomes.