Cost management refers to the process of allocating, controlling and estimating the overall costs in a particular project. It enables a business or organisation to predict any coming expenses to reduce the likelihood of going over budget.
Every successful project manager must know how to develop cost spreadsheets, cost calculations, use cost management templates, estimate resources required for a specific project, allocate the cost estimate to every work item and more. The project manager should also control changes to the project budget, and conduct different activities, such as managing, financing, budgeting, estimating, funding, etc. Thus, project managers must be actively involved in effective cost management.
Here are the key processes that every project manager must perform for an effective cost management:
This involves the process of determining the physical resources and the quantities of each to utilised to perform project activities. It can include the equipment, time, material, etc. When the types of resources and their quantities are determined, it is now time to determine the cost associated with it.
the process of approximating the amount required to complete project activities. When a project manager develops a cost estimate, there are a few things that must be considered, such as the facilities, services, labour, equipment and materials. For other projects, contingency costs or inflation allowance must also be taken into consideration.
It involves the use of cost spreadsheets to develop the budget framework and identify the budget. Project managers may use a cost management software to work with the financial department to identify items of the budget and the funding sources, and to allocate the budget.
This is when spending is monitored and the budget allocated in carefully reviewed. The project manager’s role is to control the spending and make sure that the allocation of budget is optimised and the costs are covered with the allocated and planned budget. Monitoring if the status of the activities is important in this process. Any deviation to quality, scope or schedule for an activity can have an impact to the cost.
The success or failure of any project is often determined by its adherence to the established guidelines when it started. A project sponsor or executive usually declares a project a failure when it fails to produce expected profits with the allocated time. A project is also considered a failure when it does not meet the needs of the stakeholder.
Therefore, cost management is a very important of effective and successful project management. Project managers must possess the ability to properly budget, plan resources, control and estimate costs.