“Operations keeps the lights on, strategy provides a light at the end of the tunnel, but project management is the train engine that moves the organization forward.” This project management quote by Woody Williams unriddles the significance of project management. Project management involves various processes from brainstorming to final execution. One of the prominent reasons for any project to be a grand success is budgeting and cost control. A certain budget is allocated for the project until its completion. Underbudgeting with low-quality work and overbudgeting with lofty expenses are to be denied and the projects should be undergone in such a way by identifying and implementing critical budgeting and cost control strategies for effective project management that can be started by inhibiting the usual day-to-day operations.
Cost control methodologies begin with the budgeting process. It provides the foundation for the cost control of the project. There are many considerations for making the project budget such as employees’ cost, software installation expenses, purchase of hardware equipment, and many more. The entire responsibility of cost control and budgeting falls upon the shoulders of the project managers. Cost control involves the task of superintending the project expenses and grooming for potential financial risks that may arise amidst the project operation. It is a quintessential financial strategy that the project managers apply to optimize the project expenses and streamline the workflows. The main juncture of budgeting and cost control is to keep the project budget in line and prepare for any emergency modes such as budget overruns, challenging scenarios, and more.
Effective cost control is not a one-shot process but involves multi-faceted approaches from planning and communication to monitoring and constant improvements. The budgeting and cost control methodologies help to navigate the overall financial landscape of the projects providing the benefits of establishing the essential guidelines, estimating the activity costs, giving potentiality to attract the past and new investors, opening lines of credit, providing easy ways for tax preparation, etc. The vital factors that need to be considered in budgeting and cost control are the cost estimates, scope baseline, project schedule, research calendars, and more.
The strategies to keep any project in budget line are:
1. Prepare a realistic budget plan during the initial phase after thorough research and analysis
2. Tackle the scope creep challenges (Click on blog how to manage scope creep)
3. Track the resource time and bill rate
4. Usage of project management software and data analysis tools
5. Having a consummate look at the critical cost factors such as labor cost, materials’ cost, actual cost, cost variance, and Return on investment (ROI)
Suffusing cost control and budgeting into project management enhances the project's profitability, competitiveness, and financial rendition making the project successful. Hence, cost control methodologies and budgeting tips must be understood by the project managers and the team. Let's bat around the budgeting and cost control tips for the project's success.
The project managers should have a deep understanding of the modern approaches to cost estimation and budgeting in project management. They should be polishing the fundamentals to keep up with new technologies that ease any critical projects forward and sophisticated. There are many cloud-based project management software available that facilitate cost allocation and budgeting. There are other several cost control techniques to predict, monitor, and manage project-related expenses such as:
i) Factor estimation
ii) Parametric estimation
iii) Quantitative factor
iv) Resource-based estimation
v) Unit rate
Along with such techniques, an adaptive and flexible accounting software solution should be installed with the availability of accurate and real-time data to back the project cost estimation techniques. The amalgamation of the cost estimation approach with the accounting software makes the project team members stay streamlined on the latest progress on projects, comparison of financial landscapes, and updates on best operational practices. While leveraging such software and practices, they make it a lot easier for:
- Tracking of real-time expenses
- Project schedulings
- Cost controls
- Identification of areas with expected cost overruns
- Creation and setting of the budget
- Management and disbursement of all the resources from a single dashboard
- Creation of detailed project plans
- Reduction of uncalled-for expenses
Many cost overruns may occur if there are unclear communication lines along with disturbances in resource allocation and disbursement in project management. Along with the usage of project management software, the single dashboard keeps every team member up-to-date on project enhancements, potential risks and issues, and many more like cost variance and other discrepancies. Regular team meetings from the networked software keep everyone informed about real-time decisions, expenses, updates, and risks. The frequent communication enables the team members to compare and monitor the research cost rates, estimate, and document project performances, and work easily with the overall team members without any hassles.
The approved budget propels the project funding forward. Hence, clear objectives should be set at the initial phase to create a detailed project scope. Then risk assessment needs to be implied to develop the project budget with cost estimation strategies incorporating the contingencies and consulting with the major stakeholders. Regular monitoring is a must along with the application of change control procedures and project management software/tools. As information is the key aspect of any project, the project members should initiate receiving information timely and revise it by making the information flow amongst the team members. Changes should be negotiable and project scope should be managed from the project managers’ viewpoints.
The detailed project plan should lead to lower cost variances that assist in cost estimation and effective allocation of resources. The project risks should be studied that may potentially or unexpectedly arise amidst the project operation. All the project expenditures should be monitored to identify cost variances and set project milestones in real-time. The project manager should ensure that the project is running within the proposed project scope. As stated earlier, change control systems or measures should be adopted to prevent scope creep. The steps of setting change control system include the:
i) Initiation
ii) Assessment
iii) Analysis
iv) Implementation
v) Closure
There are always sudden hiccups or interregnums along the project's progress but preparation with measures is important.
Along with the increment of the project time, the cost of the project also significantly increases which will lead to cost overruns, minimizing salaries, etc that may open doors to other potential issues such as low productivity of the team members, project failures, scope creep, and many more. Hence, amidst the potential challenges, several time management strategies or tips must be implemented so that the project team members dedicate their efforts to complete the tasks on time under the stipulated budget. Time management strategies may include:
i) Timeboxing
ii) Time blocking
iii) Pomodoro method
iv) Eat the frog
v) Pareto principle
vi) Getting things done (GTD)
Budgeting and cost control are about measuring the financial landscapes of the project. Earned value is the effort that’s dedicated to the completion of the project that helps to estimate the financial corollary of the project. The cost control techniques enable the project team members to understand the entry or arousal of the variable costs enabling the team to stay alert from the variances that may arise in the upcoming schemes. Cost variance notifies the team about the measurements if the project is performing at a significant rate with the stipulated budget.
Note: A negative CV or cost variance indicates the project is over budget.
SPARE Tips:
- Assigning responsibilities for cost control to specific and accountable project team members
- Regular monitoring of actual costs against the budget for identification of variances to take prompt and corrective actions
- Continuous organizing of post-project reviews and feedback to pitch the areas of improvement
- Training delivery to the team members about best practices of cost control
- Developing mutual understanding amongst each other that individuals’ actions impact the project and the unified cost-saving initiative with 100% result is crucial
Embedding budgeting and cost control techniques into a project is the most important financial strategy for the project profitability and goodwill of all hence, the methodologies on cost control should be implied during project execution.