Cost-cutting is a fundamental business strategy. It is an indispensable factor in project management. Determining budget and forecasting are a few objectives of a project cost management plan. It is applied in the project life cycle to achieve deliverables successfully. Read on to find how it works.
Project Cost Management | Meaning
Controlling expenses in the entire project lifecycle within a predefined budget and time, and meeting the quality expectations of the client is project cost management.
Project Cost Management | Processes
Creating a project cost management plan starts from the beginning of a project until the end. Here is how project managers do it.
Project managers plan the resources first. Typically they create a work breakdown structure highlighting the deliverables before allocating any activity. It is a hierarchical structure with the main goal showing on the top going down through the subcategories. See below.
This structure helps identify how resources should be used and how much a resource will need spending.
Estimating the costs of an entire project requires information on the price of individual resources, duration of deliverables, and potential risks. It is done with various methods. They are as follows.
- Analogous estimating or top-down estimating is one technique where project managers draw conclusions for the new project from historical data of earlier projects.
- Parametric estimating not only uses historical data but also statistical modelling to calculate the costs or time required for a project.
- Three-point estimating is another cost determination method where a project manager looks at three different scenarios. They are usually termed as ‘optimistic’, ‘pessimistic’ and ‘most likely. Optimistic is when deliverables are cost-efficiently done, pessimistic is the opposite and most likely bit comes between the two.
Using one or more of the above cost estimating techniques in project management are necessary as the scope of work tends to change during a project lifecycle.
This third step includes allocating expenses for individual tasks and comparing them to the total calculated estimated costs.
Project managers also have to chart out the potential financial risks during the project. They do it by evaluating the cost baseline or the total estimated costs of all tasks. They check the performance against the total costs and time taken for project delivery. It should not cross the control threshold, which is the amount of variation a project approves.
Create Your Project Cost Management Plan Efficiently
There you go. You are all set with a complete project cost management plan. While you create it, do give project quality management a look to get the most out of a project life cycle.
If you have recently completed a professional course/certification, click here to submit a review.
Download this article as PDF to read offlineDownload as PDF