Project Cost Management

Effective cost management is one of the key measures of good project management. Cost is a big project constraint and it’s one of the primary focus areas when managing a project. In any economy, managing cost can mean the difference between a projects survival or its failure. At times companies are forced to slash their budgets in order to stay competitive. The projects that are proving to be very costly or are not moving forward as quickly as the company would have liked are often terminated. At the end of the day, a project lives and dies by the almighty dollar. If you have managed projects for any period of time, there’s a good chance that one of them was terminated due to budget issues. It is a simple fact, so what can be done about it? The answer is quite simple: You should try and manage the budget as closely as possible. You must stay conscious about the cost and manage the budget as if the money was going out of your own pocket. If the project gets terminated, it might take away your paycheck with it if you don’t manage cost wisely.

If it was easy to manage a budget, anyone could do it, right? After all, it is just like balancing your checkbook. You have a budget, and you have costs and expenses that you need to make provisions for in the budget. The finance people call it a “two-line chart” (budget versus actual cost). In the field of project management, you need familiarize yourself with additional tools and techniques to more effectively estimate, manage, and report progress against your project budget.

Project Cost Management Processes

Project cost management is all about estimating, budgeting, and controlling costs so that the project can be completed within the approved budget. The main focus of cost management is to develop a plan and stick to it by tracking actual spending and the impact on the budget. There are three primary processes associated with cost management:

    Estimate costs: Part of the “planning process group” this involves developing an estimation of the monetary resources required to complete project activities.
    Determine budget: Aggregating the estimated costs for individual activities or work packages to establish an approved cost baseline. This is a part of the planning process group.
    Control costs: Monitoring project status to update the budget and manage changes to the cost baseline. In the real world of project management (and especially on smaller projects), cost estimating and cost budgeting are closely interlinked and could even be combined into, a single process. It falls under the Monitoring and Controlling process group.

When doing cost planning, its important to keep in mind that it is common to see a lot of money being charged to a project at the beginning without much to show for it. Unless you manage the startup carefully, you can go over budget pretty quickly. So, take all these things into consideration when planning for cost on a project or project activities.