How to Control Costs in Project Management
Cost Control Techniques in Project Management: When you control cost within your project it will make certain that your project is created within your budget. There have been many times where business projects cost went out of control, due to a poor cost control system. It could’ve easily been avoided if they did use proper cost control techniques in their projects.
The traditional way of cost control was estimating a projected cost and then set a budget to ensure your spending stay within your budget. Over time the business environment has gotten more complex. Some of the tools that worked 40-50 years are obsolete now. Some of these old methods now have a lot of limitations including the traditional way of cost control.
You now have a lot of cost control techniques you can use. Some of these methods may be different but the end result is the same which is to help in keeping cost within your budget. You can see some of them below.
Variance analysis
You can use this technique to compare your actual cost performance with your projected cost performance. For example if your estimated project cost was $10,000 and your actual project cost was $15,000, it means that you spent $5,000 than was expected. You can now analyze your project to see what the cause of the variance was. So you can take right actions to eliminate the risk of that happening again.
Earned value
This technique will help you to monitor your project right throughout its life cycle. You are going to do this by looking at your project plan and the actual work that’s completed to a certain point. Additionally, it’s important to also measure your budget to see how much should have been spent in relation to the amount of work that has been done thus far.
To complete performance index
This strategy is used to determine the cost of your future performance. That needs to be done in order to complete a project within its assigned budget. If your project is over-budget, you can use this technique to measure the performance that’s required to complete your project that was on your original budget. To calculate this divide the amount of work remaining against the remaining cash left in your set budget. To find the value of the amount of amount of work remaining, subtract the earned value from the overall budget.
Cost aggregation
You are going add up the costs of each work at different time periods in a project. This will help you to see the amount spent at different times with a project’s lifecycle.
These are just some of the methods you can use in your project to help control cost and keep it within your original budget. These techniques shown above will not eliminate the action of over spending. This is simply because there are so many things that can affect a project and cause overspending.
What they will do is try and minimize the risk of over-spending or keep it within an acceptable level. If you practice these techniques overtime you will begin to see how powerful they can be.