What is project cost management?
As defined in Wikipedia, Project cost management (PCM) is a method which uses technology to measure cost and productivity through the full life cycle of enterprise level projects.
For a company’s management to be effective overall, cost management must be an integral feature of it. It is easiest to understand this concept if it is explained in the context of a single project. For instance, before a project is started, the anticipated costs should be identified and measured. These expenses should then be approved before any purchasing occurs. During the process of completing a project, all incurred costs should be noted and kept in a record of some kind, to help ensure that the costs are controlled and kept in line with initial expectations, to the extent that this is possible.
If the project is completely and clearly defined, this will facilitate effective management of the costs it will incur. Effective cost management strategies will help a team deliver a finished project within the allocated budget, while also making it as valuable as possible to the company. There is always the possibility of unexpected costs, but preparation in the form of cost management will likely make them much easier to deal with when they occur.
Project Cost Management Process
Project Cost Management includes the processes involved in estimating, budgeting, and controlling costs so that the project can be completed within the approved budget.
Estimate Costs—The process of developing an approximation of the monetary resources needed to complete project activities.
Determine Budget—The process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline.
Control Costs—The process of monitoring the status of the project to update the project budget and managing changes to the cost baseline.
These processes interact with each other and with processes in the other Knowledge Areas as well. Each process can involve effort from one group or person, based upon the needs of the project. Each process occurs at
least once in every project and occurs in one or more project phases, if the project is divided into phases. Although the processes are presented here as discrete elements with well-defined interfaces, in practice they may overlap and interact in ways not detailed here.
On some projects, especially ones of smaller scope, cost estimating and cost budgeting are so tightly linked that they are viewed as a single process that can be performed by a single person over a relatively short period of time. These processes are presented here as distinct processes because the tools and techniques for each are different. The ability to influence cost is greatest at the early stages of the project, making early scope definition critical.
Project Cost Management Techniques
When managing a project for a small business, the ability to control costs is of the upmost importance. This can be a challenging task for even the most experienced project manager, particularly when there are a variety of expenses that are genuinely required for the venture to be executed without a hitch. There are, however, a few techniques that can be applied that will ensure that a project is complete under budget without compromising the integrity of the company and those associated with the project’s implementation.
It is impossible to effectively manage the budget of a project without first estimating the potential costs included. A badly planned project will not likely end successfully. Project managers must think through the entire project from start to finish and list all materials and labor needed to complete the job. The project manager must assign a cost to each line item in the project budget and also assign it a place in the project time line.
2 Time Management
Perhaps one of the primary causes of monetary waste on a project is poor time management. In order to successfully contain costs, a project manager must ensure that everyone on his team is working as efficiently as possible. In order to accomplish this, he must effectively delegate responsibilities to each employee. Although each person should only be given a realistic amount of work, there should not, ideally, be any overlap of their respective tasks. In addition, the project manager should actively monitor the work of his team to ensure that all work is on track for timely completion.
3 Change Management
Change management figures critically in the success of any project. Project managers should use a standardized change form every time a change occurs in the project. The form should document any change to scope, materials, timeline, costs or price while listing the type of change, the person who initiated it, the reason for the change and the affect on cost, price and time frame, as well as additional notes made by the project manager. All change forms should be signed by the party initiating the change. The project manager should enter the highlights of each change form into a master change log, allowing for easy tracking of the total impact of changes. Clients may balk at signing a change control form; if the project manager can’t get a client to sign it, they can send an email detailing the change information and ask the client to send a reply approving the change.
4 Earned Value Management
Earned value management (EVM) in its various forms is a commonly used method of performance measurement. It integrates project scope, cost, and schedule measures to help the project management team assess and measure project performance and progress. It is a project management technique that requires the formation of an integrated baseline against which performance can be measured for the duration of the project. The principles of EVM can be applied to all projects, in any industry.
5 Utilize All Tools
In addition to human resources, there are quite often various electronic resources aimed at supporting the successful and timely completion of a project. You can learn about some project management tools, some of them are free, you can try it. By effectively utilizing each of these tools, a project manager can better ensure that the project is completed on-time and under budget.
As is known to all, project cost management is very important, for any project manager, it is critical to implement a cost management process to ensure accountability and be able to demonstrate the success or failure of a given endeavor.