Project cost management is another toolset that is needed to make sure projects finish on time and don’t bankrupt a company in doing so. Cost overruns are common in most projects and this is less than ideal, managing a budget and keeping it from spilling over is important to make sure your project runs smoothly. This sect of project management includes determining budgets, estimating future budget problems, and controlling costs throughout.
Step one in project cost management is project resource planning. This step is taken up at the beginning of the project, you are to estimate the work to be done and how resources (employees, equipment, and other factors) are to be distributed between action items within the Work Breakdown Structure (WBS). Some things to consider when resource planning is historical results, stakeholder feedback, and how resource availability changes throughout your timeline. This step is one of the most important as it lays the groundwork for the rest of the steps and provides a step to start over and reevaluate from the beginning.
Step two in project cost management is cost estimation. In this step, you take the work from when you assigned resources and extrapolate the cost that these resources will accrue throughout the project. Some things that are necessary to determine cost are, resource prices, assumptions, potential risks, and historical data. Within this step accuracy is of utmost importance; Incorrectly estimating costs can lead to budget deficits or overruns which are both avoidable and hurt the company. The work done here directly leads to the next step.
The third step in project cost management is cost budgeting. Cost budgeting is collecting estimated costs and splitting them up into budgets for segments of the project.
Collecting costs and lumping them together allows one to create a metric from which productivity and project performance can be estimated. This step can be repeated if needed as future cash becomes available to the project and if any work stoppages happen budgets can be reorganized to allow for smoother work and the hope of not overrunning said budget.
The fourth and final step in project cost management is cost control. Cost control is a step the evolves with the project itself. By using the budgets determined in step three one can use those metrics to determine if budgets need to be increased or reduced to stay in line with the scope of the work. This step relies heavily on reporting of project success and productivity. By examining schedule changes and cost changes you can ensure that the project will continue smoothly with the money it needs as time progresses.
Project cost management is extremely important. As the project grows and becomes more complex one thing needs to stay simple and available, the cash flow. Without the money needed to retain resources and cover unexpected events any project is destined to fail, but with some upfront estimating and cost control you can make sure that your money continues to support the project up until it is deemed finished.
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