The hour as a critical factor in project management, what can't be measured, can't be managed

As the famous management saying goes: "What can't be measured, can't be managed."

This couldn’t be more true when it comes to project management—whether it’s in design, supervision, implementation, or any other area. And in this world, the hour is one of the most important units of measurement.

In this short write-up, we’ll go over how critical the “hour” is when it comes to estimating project costs, tracking actual costs, spotting any variances, and even forecasting the cost of what’s left to complete.

 

Estimated Project Cost

When we talk about estimating the project cost, it mainly boils down to two things:

• Expected hours for each task multiplied by the average cost of the employee(s) doing that task. This gives us the direct labor cost.
• Non-labor direct costs, like consultants, travel, accommodation, communication, and transportation, etc.

Many companies use simple tools or Excel sheets to come up with these budgets. But one of the downsides of Excel is that it doesn’t always connect with the employee cost data—especially if you’re planning for someone not yet in the system.
Still, these estimated costs are super important because they act as the financial baseline for the project. They shouldn’t be changed unless there’s a valid reason, and even then, only with approval from top management or the PMO.

 

Actual Project Cost

Now, when it comes to tracking what the project is really costing, there are usually two main sources:

• Actual hours logged by employees each week through timesheets. These need to be accurate and carefully reviewed because any mistakes in logging can mess with performance evaluations for both the teams and the overall project.
  Each employee’s hours are multiplied by their current average cost. (And keep in mind, these costs can change as salaries change.)
• Non-labor costs actually spent—like consultants, travel, and so on, as mentioned earlier in the estimated costs and it is usually captured from the finance team.

 

Forecasted Cost for Remaining Work (ETC)

When trying to figure out how much it’ll cost to finish a task, the most important factor is how much of the task is already done (% completion) from hours point-of-view, then calculating the cost accordingly (as explained earlier).

 

The Estimate-To-Complete (ETC) hours can typically be calculated using one of the following three methods:

• Budget × (1 - % Completion): This approach reflects a realistic forecast based on current progress.
• Budget - Actual: This method assumes a fixed budget framework.
• Actual × (1 - % Completion) / % Completion: This reflects a performance-based projection, assuming actual productivity continues at the current rate.

Once ETC is determined, the variance can be calculated as follows:

Variance = Budget – (Actual + ETC)

A positive variance indicates that project execution is within acceptable performance levels, whereas a negative variance signals a potential issue requiring immediate attention from both the Project Manager (PM) and the Project Management Office (PMO).

 

In conclusion, the hour remains a fundamental unit in evaluating project performance and key performance indicators (KPIs). It must be measured and monitored accurately—not just by employee supervisors, but also by the PMO and senior management.