What Is Project Cost Control? (With Tips and Process Steps)
For a customer to be satisfied with a project and for the business to make a profit completing it for them, it's important that the project's costs remain controlled. The project manager has a significant role in this, from creating the budget to tracking spending. If you're researching project management roles as a career possibility or taking on supervisory responsibilities in your own job, it may benefit you to learn about project cost control. In this article, we discuss what project cost control is, how it's different from project cost management, the steps involved and tips for successfully controlling costs in a project.
What is project cost control?
Project cost control is one component of project cost management, and it involves tracking how a project's spending varies from baseline expectations throughout the life of the project and creating corrective plans if necessary. The project manager is usually responsible for the project's cost controls, including operating monitoring software and investigating any cost differences. Good project cost control requires a detailed knowledge of the project's planning and execution, since the project manager must be able to identify when the project exceeds the projections and understand why.
Why are project cost controls important?
Project cost controls are important because they can help keep a project within its budget, which is an important element of a successful project. Cost controls make it possible for the earlier cost management steps to be effective and accurate throughout the project. When a company consistently completes projects under budget, they can earn a larger profit, build their brand and reputation for trustworthiness and more accurately budget for future projects.
Project cost control vs. project cost management
Cost control and cost management in the field of project management have some similarities: They're both completed by the project manager, both require extensive financial data and they both help a project stay within its budget. There are also several important differences between project cost control and project cost management, including:
Scope: Project cost management describes a long-term process for handling a project's budget and finances throughout the whole project and includes cost control, while cost control is the specific process of evaluating and adjusting expenses while the project is progressing.
Time period: Project cost management begins with the planning phase and continues throughout the project, while project cost control happens only after the project has begun.
Requirements: To complete project cost management, a project manager researches many elements of the project including labor and equipment costs, scope, requirements and the details of each step of the process. To complete project cost control, a project manager needs the project's budget and projected costs as well as current data from ongoing project expenses and enough understanding of the project to understand why costs differ from projections.
What are the steps of project cost control?
Here are the four main processes of project cost control:
1. Measure differences from baseline budget
First, the project manager understands the baseline budget expectations by reviewing the original budget and any departmental or stage breakdowns. Then, they implement tracking procedures to see how the project's spending compares to the projected costs, and if it is different, they measure how great the difference is. Tools like specialized software and spreadsheets can help project managers with this tracking process. It's important that the project manager make sure their information is as accurate as possible in this stage so that cost forecasts are accurate in the next step.
2. Forecast final costs
Once the project manager understands the differences from the original budget, they use this information to project what the project's final cost will be if spending continues along current lines. If the project was over budget in a stage that is now complete, the project manager calculates any costs added during that time or later delays that event may cause. If the project is over budget for a process that is still going on, the project manager calculates how much more over budget that ongoing process will add to final costs.
3. Determine possible corrective actions
Once the project manager has all this information, they can look at their plan for the project and see what potential corrective actions could bring the project back within budget specifications. Depending on the project, this may involve adjusting the schedule, the staffing or the project timeline to reduce costs.
4. Implement and evaluate corrective actions
Next, the project manager implements these corrective actions by negotiating with teammates, vendors or contractors. They may also communicate with the client to explain the changes and the reasoning behind them. The project manager then uses the new data and the budget tracking practices to evaluate whether the corrective actions were effective. If not, the project manager creates and implements new corrective actions until they get the desired results.
Tips for project cost control
Here are some tips for implementing cost controls in your projects:
Review the budget frequently. To understand whether project spending is acceptable or whether it's time to implement corrective measures, it's important to review your budget frequently, at least every week. This way, you can catch any overspending as soon as it happens and reduce extra costs immediately.
Communicate with all team members. You can find out how your team members are spending their hours or what funds they need if you communicate with them frequently. If you are working on a large-scale project, you may also think of new corrective measures by speaking with other department managers or vendors.
Control project scope. You may find your project exceeding labor budgets if your teammates aren't aware of how much the project or contract involves. Keeping your project within the original contract or agreement can prevent your team from doing free labor for the customer and going over budget with labor costs and delaying the schedule.
Track individual components. To make it easier to understand where overspending happens, track both budget and spending for individual components of larger projects. This may mean tracking contractor spending, tracking labor in different departments or tracking labor and material costs separately.
Revise budget if necessary. If your corrective measures don't fully get the project's costs within the estimated costs, review the original estimation and budget process. If there were discrepancies or forgotten costs during that process, work with the client to revise the budget and use that information to make better estimates for future projects.
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