Project costs management: What it is and how to do it

Are you starting a project and don’t know if you will have the necessary resources? Or worse, the project is coming to an end and the budget has already been consumed? It may not be a comfort, but you are certainly not alone in this situation. Although fundamental, cost management does not always receive due attention and budget problems are among the main causes of project failure. Given its relevance, it is one of the 10 knowledge areas of the PMBOK, the guide published by the Project Management Institute (PMI) that gathers the best practices for project management.

The customer is always right

It is common to think about calculating and presenting project costs only when the final product is intended for an external customer. In fact, in these situations, a detailed cost survey is essential in order to be able to make a budget and, possibly, a commercial proposal. But even if your project is not intended for an external client, the manager or director who is sponsoring the project must be provided with estimates of the resources that will be needed. This information will be important for the executive to be able to make decisions and actions that they deem relevant.

Costs According to PMBOK

As we have already said, PMBOK dedicates an entire section to present the best practices in project cost management. They are divided into 4 stages for better understanding and to ensure that the project is executed as close as possible to the budget.

1. Resources planning

It is at this moment that the Project Cost Plan is created. It will describe the main guidelines that will govern cost management. Which units of measure will be used, names of specialists to be consulted (if applicable) and rules for measurement.

2. Cost estimate

It consists of predicting the amount and value of the resources needed to carry out the project. It is at this stage that decisions will be taken, such as: using own resources or outsourcing? Buy equipment or rent? Share resource with another project or wait for it to finish? At the end of this stage, the project will have its estimated costs, but in addition to these, it is healthy that an additional amount be provided as a contingency to cover unforeseen circumstances.

3. Cost budget

In this stage, based on the estimates, suppliers, closing amounts and total expenses will be determined. The budget must then be submitted to the client or sponsor for approval. Once the budget is approved, the project cost baseline associated with the WBS (Project Analytical Structure) is established. It is based on the WBS that it will be possible to carry out the monitoring of costs during the execution of the project.

4. Cost controlling

This step comprises recording the real costs during the execution of the project. All expenses must be detailed and documented so that they can be tracked, if necessary. The project manager must frequently compare what was planned (budgeted) with what is being accomplished. When realizing deviations, you must take actions to ensure that the budget is respected. Another relevant factor at this stage is changes in scope. They must be carried out with authorization and duly communicated to all involved. The impacts they generate on the budget must be recorded and the baseline updated.

Did you notice how cost management is something that cannot be neglected in project management? Enjoy and get to know SoftExpert PPM. It is software that allows organizations to easily manage projects, programs, people, services and finances through a complete set of features that simplify project management best practices with a low total cost of ownership.

 

    Laurides Dozol

    Author

    Laurides Dozol

    MBA in Enterprise Management from FGV. Business and market analyst at SoftExpert, a software provider for enterprise-wide business processes automation, improvement, compliance management and corporate governance.

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