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Controlling project cost

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Controlling project costControlling project cost

Similar to when you control the scope and control the schedule, we are concerned here with measuring performance, correcting performance and communicating that information.  In addition this will involve implementing any approved change requests.

Estimating, developing, and controlling the project budget is one of the highest visibility activities that you will do as a project manager.  All that senior management need to know is how you what are progressing according to the budget, and because people often estimate assuming everything will work perfectly, staying within the budget can be quite challenging for the project manager.

When you are monitoring and controlling the budget, you need to make sure that you compare the baseline cost for deliverables or an element of work, with the actual cost.

Do not make the mistake of comparing how much you planned to spend with how much you have spent, without taking into consideration what you have got for what you spent!

You have to monitor the performance against the money spent.

Controlling your project cost also consist of managing expenditure in order to stay within funding limitations as well as recording the actual costs as they are incurred.

When you identified a cost variance, you should determine its root cause and what the appropriate response should be.  You need to take corrective action or preventive actions to stay within the cost threshold.

The project manager will need to update the budget in order to align with any changes to scope, schedule, quality, human resources, risk, and procurement.

Control costs

Cost overruns can be caused by so many different offence, so here are some of the more common causes that you will find:

Inaccurate estimating

The person estimating either didn’t know how to estimate, wasn’t given enough time or information to develop a good estimates, always ask to arbitrarily reduce the estimate and hence make it unrealistic.

Inappropriate estimating methods

Using cost estimates that are more than two or three years old will not be reliable.  Also, you need to select the correct estimating methods, such as parametric, analogous, and so on.

Unplanned, in scope, work

If your project is not fully defined and the project scope is ambiguous, you might find work in there that you didn’t identify initially during the planning process.  You still have to do the work, but you don’t have the budget for it!

Scope creep

Adding or changing scope without taking into consideration that the cost impacts will cause you to come over budget is one of the most serious and regular causes of cost overrun.

Quality issues

If you find many defects and have much more scrap and RE work than you originally planned, then you will go or over budget.  Such a situation is the direct consequence of quality issues.

Change in resources

When you originally create your plan based on current resources at one amount, but then at a future point it within the project get different resources that cost more, you will incur an overrun.

Risk events occurring

When responding to identified risks, or developing a workaround for an identified risks, this can cost more money than was originally budgeted.

Lack of change control process

If you don’t have a process to identify, evaluate, agreed, and manage project changes, you will almost certainly go over budget because the scope will increase, the schedule will never have baseline, and people will tell you that it costs what it costs.

Given all those reasons above that could cause cost overruns, you can see why this process can be challenging, and it is therefore important that you understand some basic definitions:

Control cost

This is the process of monitoring the status of the project in order to update the project budget and making changes to the cost baseline.

Cost performance baseline

This is a specific version of the time phased budget used to compare actual expenditures to planned expenditures in order to determine whether or not preventative or corrective action is needed in order to meet the project objectives.

Performance measurement baseline

This is an approved integrated scope-schedule-cost plan for the project work against which project execution is compared to measure and manage performance.  Technical and quality parameters may also be included.

Cost management plan

This document sets out the format and establishes the activities and criteria for planning, structuring, and controlling the project costs.  The cost management plan is contained in, always a subsidiary plan of, the project management plan.

The cost performance baseline is your commitment to the sponsor for project expenditures and reserves.  The cost baseline should change only in response to a change request that has gone through the perform integrated change control process.

 

Check out more on controlling project costs in my PMP Mastery System HERE!