Typically, cost management is concerned with the process of planning and controlling the budget of a project or business. it is inclusive of activities such as planning, estimating, budgeting, financing, funding, etc. Cost management is incorporated into the full life cycle of a project from the start till the end.
There are typically four steps to an effective project cost management. They are resource planning (or also known as Planning Cost Management), cost estimating, cost budgeting and cost control.
Effective resource planning helps the project manager determine how much manpower, raw material, equipment, facilities, etc. is required to successfully deliver the project. This can be done by creating a ‘Work Breakdown Structure’, that will aid the project team in identifying components of the project and what resources they will need to acquire. Another way to carry this out is comparing historical information of similar projects to define which physical resources are needed.
Cost estimating is developing an approximate value of how much the identified resources are going to cost. This process involves identifying and evaluating the different pricing alternatives, and eventually choosing the option that will profit the company the most without compromising on the quality. There are a few methods that are commonly used for cost estimating, namely: –
- Analogous estimating
- Parametric estimating
- Bottom-up estimating
- Various cost accounting tools or computerised tools
Together with a project schedule, the cost estimate forms the input for cost budgeting. The budget will give an overview of the periodic and total costs of the project. Cost estimate defines the cost of each activity and resources, while the budget allocates the costs over the time period when the cost is incurred. It makes use of the project schedule, work breakdown structure, and cost estimate to deduce a cost baseline for the project. This cost baseline becomes an important element for tracking project management cost during the project life cycle.
Cost control is concerned with measuring variances from the cost baseline and taking necessary actions to achieve minimum costs possible. Procedures and processes are applied to monitor expenditures and performance against the progress of a project. Changes to cost such as an increase in supplier’s rates due to the supply of resources. Regardless, all changes to the cost baseline need to be recorded and the expected final total costs should be continuously forecasted. This is done so that corrective actions can be implemented when necessary to avoid cost overruns.
Effective cost management is the central measure of accountability for business leadership. It ought to be as strategic as it is operational, and is an important determinant for business success.
Managing Project Costs and Budgets is a 3-day course that will provide participants with an effective set of skills and knowledge that will allow them to manage the dynamic project cost function. Through this, participants will acquire the ability to apply the techniques and contribute directly to more efficient project financial management processes. For more information, please visit us at http://www.opuskinetic.com/training or contact us at firstname.lastname@example.org.
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