As an integral part of project management, cost management is the practice of planning and controlling the budget of a project. Cost management is a structure of management accounting that enables an organization to forecast expenses to help reduce the possibility of going over budget. Project Cost Management is a system that uses technology to calculate cost and efficiency through the life cycle of all projects.
Importance of Project Cost Management
The significance of cost control in project management success is something every project manager knows about. The ability to maintain an organized approach to tasks while staying aware of cost control is not very simple. In spite of the fact that time and resource management are indispensable to accomplishing objectives, cost management is at last what decides a positive project outcome.
Without a proper cost management, the company could lose money as expenses surpass benefits. Another matter is that you may inaccurately invoice your clients. All this causes a faulty budget and an inability to alert when you’re overspending.
What Is the Process of Project Cost Management ?
According to PMBOK Guide, Project Cost Management has four processes
1. Planning Cost Management
2. Estimating Costs
3. Determining Budget
4. Controlling Costs
The first thing you have to do is to plan your cost management. Then make an estimation of all your costs at the task level for a proper cost management. When you complete these steps, you can move onto the next step, which is preparing your project budget. Then you will baseline all the costs and establish a set of actions that will keep you on track. Controlling Costs process is one of the most important process in cost management. The purpose of this process is to compare all the planned and actual figures and calculate the variances.
Tips for Managing Project Cost
– Prepare a baseline budget
– Keep in mind the mark-ups,
– Add Contingency Reserve to your budget for managing identified risks,
– Add Management Reserve to your budget for unforeseen works,
– Use a software to tack your projects costs
– Record actual costs
– Analyze the procurement strategies
– Calculate and update cost metrics
– Update cost estimations regularly
– Communicate with team members regularly
– Control the productivity of resources
Whether you have a small project or a large project, it’s important to know that a project can not be performed without a proper cost management system. Project management success depends on the ability to establish an effective cost management system. While time and resource issues are always important, the factor that often has the biggest effect on project success or failure is whether or not the project team can – or cannot – optimize project outputs with efficient cost management.