The challenge faced by every enterprise is accomplishing a project successfully but without surpassing its estimated expenses. Here lies the need for a potential Cost Management Plan. Knowing about it in-depth and implementing the same leads to the profitability of an enterprise.
What Does The Term “Project Cost Management” Imply?
In simple words, project management cost refers to keeping an eye on the expenditures throughout the different project phases. It is the technique of ensuring that an enterprise doesn’t have to use a portion of money laid aside for another project to complete the existing one. Completing within the approved budget isn’t the only concern. Timely execution without compromising on the quality of any of the operational procedures also needs to be taken care of.
Significance Of Project Cost Management?
Planning a project’s sub-tasks is entirely dependent on its budget which determines the level of expertise to be hired or deployed. Even PMP Certification emphasizes on Cost Management as its core knowledge areas. Project managers need to become adept at applying meaningful project expenditure checking practices. It is essential on their part to attain the following:
- Assure stakeholders of their expectations regarding investment in the concerned project.
- Ensure control over unplanned changes in the project cycle.
- Progress tracking and quickly responding to any flaws with steps to prevent their further occurrences.
- Enhanced return on investment.
- Maintenance of expected margin thereby, avoiding loss of money.
- Producing data related to expenditure to use it as the expense benchmark for upcoming projects.
Four Fundamentals Of Project Cost Management
The cost-effectiveness of a project depends on the proper execution of these major steps that have been discussed here in detail.
Resource identification is the foremost task of a project manager. It involves the selection of both human resources and inanimate objects. WBS (Work Breakdown Structure) has to be prepared by him that would include sub-tasks. He enquires employees in respective fields about the number of hands, time, and types of raw materials needed for a specific function. After acquiring the required information a project manager arranges the distribution. This helps in creating a proper list of resources for cost estimation in project management.
How to make resource planning more effective?
- Past efforts, work schedules, and data regarding the output at every stage must be referred to.
- Feedback from team members and SMEs proves to be of great assistance especially, in the absence of past data.
- Select resources depending on how fast they can be procured instead of unnecessarily waiting for them. That would simply drag the project schedule.
- A resource either human expertise, equipment, or raw material that might not be available but is essential must be subject to outsourcing.
- Project managers must take this factor into consideration and keep cost-efficient solutions ready at hand.
The cost management section that aspiring PMP aspirants go through, covers the aforementioned tips for project managers to get well-versed in these. Flawless resource planning prevents expenses from popping up in the course of a project.
Cost management in project management is the toughest step and demands accuracy. Time value, inflation costs, overheads, and variable and fixed expenditures have to be taken into account. Choosing the right cost estimation model is the secret to removing differences between actual costs and the planned budget. PERT, parametric model, and analogous model are to name a few of the estimation techniques. Project managers also need to select between bottom-up and top-down approaches. The former is efficacious in the case of projects having enough data from similar references while the latter focuses on estimating costs in terms of tasks decided.
An efficient Cost Management Plan covers the following:
- Information is gathered from the output of the previous step to identify the resources required.
- Expenses are calculated accordingly. These include vendor hiring, rates per unit of material, service procurement, and per hour staffing.
- Analyzing the requirement duration of individual resources.
- To list potential risks.
- Compliance with industry standards wherever obligatory.
- Looking into the concerned organization’s reporting structures and financial health.
Project cost management won’t be of any value unless budgeting is done. This phase encompasses cost allocation and management of unexpected expenses through contingency reserves. A project manager not only evaluates the expenses to be incurred in the project timeline but also segregates them into time chunks. Previously prepared WBS and estimation techniques are utilized for deciding on the budgets of separate time quarters of a project. In this way, the initial limited capital is saved by project managers to avoid any uncertainty in project completion.
This step is carried on during the entire lifecycle of a project. It comprises clear and timely reporting of expenses incurred at each stage. Project managers resort to the EVM (Earned Value Management) method for measuring expenses in terms of project performances. This control process is vital for bridging the gap between project functions and the cost baseline. Either of the two is adjusted to confirm that budget isn’t exceeded by any means.
Project cost management isn’t complex if done in an organized manner and results in profitability, in the long run.