The following are common project cost management challenges that successful project managers must overcome without losing themselves in the process:
Managing project changes while managing project schedules is one of the most challenging aspects of effective cost control. Projects are usually budgeted in advance, and it is relatively common for the scope to inevitably change. These subsequent changes ultimately lead to complex forecasting and budgeting.
The way to address this problem and handle scope changes is to define and communicate a structured approach for evaluating and approving change requests. In this way, you can identify decision points ahead of time and set a flexible budget that covers any project changes. It is also important to have a clear definition of project completion to avoid confusion when unexpected changes occur.
Reports provide vital information on progress, profits and expenses, enabling project managers to control expenditures. Unfortunately, most organizations are still stuck in the past, using spreadsheets to report important business data. While spreadsheets can do the trick, data shows that 88% of spreadsheets have errors.
While some mistakes are tolerated, some are completely unacceptable and can lead management and project managers to make critical decisions based on inaccurate data. Therefore, businesses must use advanced software that can build accurate reports in real time to eliminate data entry errors, and ensure that they provide stakeholders with an accurate statement of their financial position, and make necessary changes to eliminate unnecessary costs.
Budget forecasting that lacks credibilityBudget forecasting is one of the challenges. Excel worksheets can only organize and present financial data in an easy-to-read format, and are often used by cost accounting system personnel, but due to the lack of credibility in the worksheets’ data, the information is often ignored by project personnel.
Alleviate these problems by creating realistic budgets and justifying budget issues over the long term in advanced project management software. The advantage of it is that they can automatically generate accurate financial information, enabling a more precise budget while reducing planning complexity.
Inefficient processes and systems
Despite great advances in project and cost management technology, around 69% of organizations are still stuck with inefficient processes and systems. A big reason they fail to adopt modern tools is the fear that it could disrupt the way they already operate. However, doing so is inefficient and time-consuming, and does little to control costs.
Effective use of cost control measures
The practical application of cost control measures is often a challenge for business leaders. This is because it requires them to monitor cost information from different sources daily, which can be time-consuming. However, failing to do so and implementing cost containment measures immediately without a proper understanding of current operations may do more harm than good.
Therefore, you must involve everyone including project team members, and encourage them to find ways for businesses to save money. Employees often are able to point out activities with low ROI and process inefficiencies because they are doing the bulk of the business. This increases employee satisfaction and gives you a whole new approach to overcoming cost containment issues.
Cost control may initially be driven by higher-level management in the company, but must be done effectively at the project level to produce desirable results. The project level is where management evaluates the actual costs of each project and manages those costs effectively.
A good way for companies to solve the above problems is to use advanced project management software with real-time management accounting and cost control, such as. Such a platform enables each project team member to instantly record his labor hours and expense reimbursements, and allows each project manager to instantly record his project purchases and costs. It also provides real-time data to help management and project managers control costs.
Plan all budgets
The first step inis to allow you to plan all your budgets so that you can refine cost estimates and allocate resources efficiently. Having a detailed project plan will reduce the variance in cost, or the difference between the initial budget and actual expenditure.
At a minimum, the project budget includes:
- Estimated time, human resources and travel required for each activity
- Estimated required equipment and materials
- Estimated required third-party services
If needed, try to give your budget some wiggle room in your calculations. There is always the chance that unexpected project risks will occur and you will need to extend the project timeline or request additional resources.
Monitor all expenses
The next step foris to monitor project expenditures. If you notice cost variances in real time, its easier to take corrective action. If you dont notice until the project is complete that youve gone over budget because youve already spent money, all you can do is use this information as a lesson for future projects.
A great way to monitor expenses withis to set project milestones. At each milestone, you can evaluate your spend and ensure the project is within scope. If you notice cost overruns at any given milestone, you can determine how to reduce costs in the future.
Use the Change Control feature
It is important to set clear project goals during the project planning phase, and you need a change control process to ensure that these goals are met.
Change control is a set of steps used to manage any changes from stakeholders in the progress of the project. This helps prevent scope creep because you can prepare for changes and adjust your project accordingly.
The steps to establish change control withinclude:
Initiation: The change control process begins when a stakeholder requests a change to the project. Actual requests may vary—their scope can be extended from timelines to new project deliverables.
Evaluation: The project manager or group responsible person reviews the request for basic information, such as the resources needed, the impact of the request, and to whom the request should be routed. If the change request passes the initial evaluation, the analysis phase is entered.
Analysis: The analysis phase is where the appropriate project leader approves or rejects the request. In some cases, there may be a change control board to control any change approvals. The project leader approves or rejects the request and notifies the team. Depending on the size of the project, the project leader can also record changes in a change log, ensuring that all project stakeholders are aware of them.
Implementation: Implementing changes can look different depending on the stage the project is in, but typically involves updating the project timeline and deliverables, as well as informing the project team. You should evaluate the project scope to ensure that any timeline changes will not have a dramatic impact on the projected goals.
Closing: Once you have logged, publicized and implemented the request, you can close it. It is helpful to have a formal closure plan so all team members know where the information is stored and can reference it in the future.
When you properly control changes to a project, you also have a better chance of controlling costs. Accurately predicting a projects budget and success requires careful management from start to finish. Small problems are always inevitable along the way, but having systems in place to prepare for these deviations can be critical.
Manage project time
Usingto manage project time well is vital. Time management is designed to increase productivity and help team members complete work on time and budget, but it is also an important cost control method because when the total time of a project increases, so does the total cost of the project.
Staying within your estimated project timeline is one of the best ways to keep your project on budget.
Track earned value
Tracking your earned value withcan help you predict the financial outcome of your projects. This method of cost control requires some knowledge of cost accounting, helping you understand when variable costs arise and ultimately prevent variance in future projects.
Earned value is the amount of work actually done on a project. To track earned value and see if you are keeping up, you need to multiply the percentage of work done by the project budget. You can use the following steps to track earned value:
The first three steps need to collect cost information from your project, while the last three steps need to be calculated and analyzed. Cost variances represent the cost status of the project.
When controlling costs, your CV will let you know if your project is being executed on budget. A negative CV means the project is over budget.