Keeping the project cost under control is probably one of the most important tasks a project manager has to do. It’s not enough to just set a budget before a project begins and when the project is finished. You are going to measure your estimated budget against your actual budget to see if everything was perfect.
This method can be useful but it has a lot of flaws in it that can negatively affect your future projects. For example you may set a budget before a project begins at around $20,000 and when you wait until your project was finished.
You noticed that it exceeded that by $10,000. So you ended spending $30,000 on your project which was never in the original goal.
A project’s budget tends to change over a period of time. And yes it can be unpredictable to have a correct estimate of what your real budget is going to be. But that unpredictability and risk can be reduced to a certain level by using the cost control. When you use cost control it helps you to track your budget through a project’s entire process or at certain incremental milestones.
This is important because it helps you to get a quick check up on what’s going on and if things seem a bit off. You can then go about developing plans to fix the issues.
Performing project cost control is also pretty easy. To implement the project cost control strategy in your organization you can follow some of the techniques below:
Estimating your budget
Before you create your plan you got to firstly create an estimate both for your entire project and individual processes. When you create an estimated budget for your overall project, you can then see to it that you adhere to that budget right throughout your project’s life cycle. Creating an estimate for your individual operations are important as well. The reasons being are because measuring them on a smaller scale and ensure that they are under a certain amount will surely affect it on a large scale.
Project plan
While creating a project plan you are going to include your calculated estimates into it as well. So basically you are going to use your overall cost estimate as a set budget for the entire project. While at the same time scheduling out the different activities and operations at what time period each operational budget for a certain task is going to be spent. This will help you to get an idea on what your budget will be when it’s tied to a schedule with a lot of milestones.
Perform earned value management
Earned value is probably one of the most important parts of the project control process. It helps to show the real value of a project development activity. So for example you set a budget for a certain activity to be at $5000. But you end up spending $2000 at its completion date. You might feel a bit happy at this moment that your estimation was a way off but when you analyzed that activity. You can see that you are not quite finish. Although you might finish at a certain date you were only 60% complete. Then you estimate that to complete that entire activity your real budget would be $7000.
Key performance indicators
Using key performance indicators to help set goals and create metrics to track certain processes is really important. Key performance indicators can be used in any part of an organization.
Using it while doing cost control will help your overall processes to perform better. Example of indicators would be tracking the total spent under management, cost avoidance, cost reduction etc.
In summary by using the techniques above to control cost. You will quickly see how useful they can be by evaluating your results on a particular project.
You have a lot of other strategies out there that you can use as well such as baseline, activity based costing etc. That when added to those above and implemented into your organization will surely improve your results.