The A to Z of Cost Control Management
Posted: Aug 02, 2020
Cost control is one of the critical components of any project and doing it the right way determines success for the project manager. Essentially, cost control includes a set of activities such as planning, estimation, budgeting, management, control and benchmarking of the project costs to make sure that it is completed within the approved budget and time while ensuring quality and performance compliance. Cost management encompasses the complete life cycle of a project, right from the initial planning stage to the measurement of the actual cost performance at the time of project completion.
Let us explain the A to Z of cost control management in detail.
Step #1: Resource planning
Even before considering the costs of a project, have a look at the resources that are needed. Resource planning refers to the determination of future resource requirements for a scope of work. Typically, the resources required for a project can include physical, financial, human and information. Some activities require material and consumables, while others need people to perform work. Still, some others involve information input like architectural or software design and in some cases, automated tools are used as a resource. Since these resources come at a cost, their planning is also vital to cost management for the project. Resource planning includes the decisions related to work breakdown structure, work packages and execution strategy. Next comes resource estimating, which is about determining the resource quantities needed in terms of hours, materials and tools. Schedule planning covers the work activities that are to be performed as a part of the project. Resource planning further considers the estimated resource quantities, while evaluating their availability and limitations and optimises how these available resources should be used in the project activities over time.
Step #2: Cost estimation
A crucial step of Project cost control management is cost estimation. A predictive process, it involves quantifying the cost and pricing the resources for an activity or project. The output of cost estimation serves as the key input for cost analysis, business planning and project cost and schedule control decisions. Cost estimating is typically a part of each phase of the project life cycle as the scope is defined or modified. The best way to estimate costs is by using a software application because it cuts down the work and ensures accuracy as well. A smart project management software solution generally has a Cost Control Module, which enables the tracking of project costs through the execution phase and makes it easy to identify deviations at the earliest stage possible.
Step #3: Budgeting
Cost estimation is only half the work done when it comes to controlling costs, budgeting is all the more critical. Although it is a sub-process within estimating, budgeting plays a key role as it allocates the estimated resource into the accounts against which the cost performance is to be measured and assessed at later stages. This makes it the baseline for project cost control. Budgets are not just about costs; they are often time-phased according to the schedule or may even address cash flow constraints.
Step #4: Cost control
Once you have a cost baseline with budgeting, cost control is used to measure variances from it and taking effective corrective action for achieving minimum costs. As a part of this step, procedures are put in place for monitoring the expenditures and performance against the project progress. During this process, the changes in the cost baseline are tracked and there is continuous forecasting of the expected final total costs. If there is apparent variation, a corrective action may be needed to prevent cost overruns. Investing in project cost control management software is advisable because it is capable of tracing cost components to the original budget and enabling change management as well.
Step #5: Benchmarking
The final step of cost control management is benchmarking, which is important because it gives the project the right direction. Benchmarking means closing the loop between two projects, with the knowledge from one project being analysed and the feedback being reflected in the others. In this way, an improvement cycle can be created to increase the performance of subsequent projects. The key objective of benchmarking is to store, analyse and use data from the already executed and running projects for extracting useful project metrics and benchmarking the current estimates. It is to be noted that benchmarking does not only compare projects but sets up a system for improvements for the future.
Now that you have the complete knowledge of the cost management process controlling them for the next projects would be easy. Also, it is advisable to implement cost control and management as a practice for all your projects rather than taking it up just once. Certainly, this is one aspect of project management that deserves special attention because you cannot expect to achieve success unless you stay within budget.
The author is a construction project manager with Zepth and has a flair for writing as well. Since She has a rich experience in working on construction projects of diverse sizes and scales, she likes sharing them as articles on leading blogs.