Project Cost Control

Every project needs to be completed in an agreed upon amount of money. Completing the project within budget is one of the most important project success criteria. Money is the most important resource and this needs to be spent wisely in a project.

Project cost management will become one of the critical knowledge areas of project management. Project cost management will focus on ensuring project costs are estimated in a most accurate manner, project budgeting is done by deciding the amount to be spent by different points in time of the project schedule and continuously monitoring and controlling cost.

Hence effective project cost control will first require accurate cost estimation and budgeting. As per PMBOK guide, following are the 4 processes for project cost management:

• Plan Cost Management – Developing overall guidelines for cost management for the project
• Estimate costs – Estimating the total amount of money that will be needed to successfully complete all the project work
• Determine budget – Developing a cost baseline by aggregating the costs of individual activities which needs to be spent at different points in the project schedule
• Control cost – Regularly monitoring the cost performance, measuring cost variances and deciding appropriate corrective action and also making forecast of any revised cost estimates.

Key considerations for effective project cost management and control

• Accurate cost estimation – It is extremely important to come up with accurate cost estimation. Accurate cost estimation will require detailed and accurate resource estimation for each activity in the project scope. Knowing the cost of each resource from trusted source is also equally important. Cost for manpower, materials and machines must be factored while making cost estimation.

Other cost elements such risk response cost, contingency reserves to handle the perceived risks must be duly added in the project cost estimates. Apart from this, additional cost factors such as inflation, cost of financing, overheads, quality management and team motivation related costs should also be added to make the cost estimates robust and practical, not leaving any of the details and aspects of the project unaccounted. Check KnowledgeHut's PMP Exam Preparation guide.

• Preparing a funding requirement plan – Integrating the cost estimates and the project schedule, the team needs to accurately prepare the cumulative expenditure plan which will enable the management to understand the funding requirements at different junctures of the project so that they can arrange for funds accordingly.
• Project change management – Any kind of change requests must be handled in a systematic and controlled manner. Cost impacts because any new change request, must appropriately be added to the cost baselines with required permissions
• Monitoring project timeline – In order to complete the project within cost, it may be important to ensure there are no delays in completing the project work. Any delay may potentially increase the project cost.
• Monitoring cost expenditure – Regularly it will also be necessary to monitor the actual expenditure and the amount of work actually accomplished. Any kind of variance here can lead to issues regarding project costs.
• Using Earned Value Analysis – Earned Value Analysis is a very popular method for monitoring and controlling costs. Cost and schedule variances can be calculated regularly, and appropriate corrective action and forecast can be made based on the variance findings.

On a regular basis, the project team needs to not only monitor and identify variances and corrective action, it will also be important to keep analysing to identify existence of any kind of trends in cost variances and reasons thereof. This will help the project team to work on to rectify and prevent any negative and bad trends.

Conclusion

Project cost management and control is one of the most important functions of project management. Especially large and high value projects need to have solid cost management and cost control mechanisms and processes in place for the projects. Cost management and control requires a very keen eye for detail and sharp vigil on cost expenditures and the work that is getting done. Variances must be identified regularly, and they must not only be rectified, but also the team needs ensure unnecessary variances should not occur in the future.