5 Tips for Successfully Managing Project Costs
Estimated reading time: 5 minutes
Managing Project Costs & Budgets
When planning and managing for project costs, several factors come into play and the ability to successfully manage them will improve the chances of project success. While the 2 most common factors that lead to project delay and increased in project costs are design errors and scope change, there are ways project managers can take for an effective management of project costs and budget.
Essentially, one of the most difficult tasks in project management is cost tracking and staying on top of project expenses. Tracking costs involves estimating budgets, establishing cost controls and tracking the actual costs. It is an ongoing process that must commence at the start of planning and remain in place throughout the project life cycle. Here are 5 tips to manage project costs:
- Produce a realistic estimate
- Achieve a baseline budget
- Establish monthly budget
- Establish project cost controls
- Tracking actual costs
- Produce a realistic estimate
Compile a realistic, comprehensive estimate that covers all the project’s phases and activities with adequate contingency. The project cost estimate must also include all people costs as well as materials, hardware and software.
- Achieve a baseline budget
Essentially, a cost baseline is an approved time phased plan. Once a detailed budget is developed and approved, the project manager should publish this baseline budget and set it as a starting point to measure the progress of the actual performance. It is also important to note that new baselines should be added if there is a change in the approved project scope.
- Establish monthly budget
Using the project resource plan and schedule, determine the monthly cost of running the project. The expected monthly expenditure should be openly documented to keep everyone on track.
- Establish project cost controls
Establishing cost controls means assigning team members the ability to give permission and sign off. Different types of expenditures may require different signatures, but the idea is that it is never completely on the shoulders of the project manager alone. Delegation is key to cost tracking as it holds every team member accountable and ensures the actual costs is in control.
Cost controls can be determined for items such as:
- Timesheets and labour approval
- Vendor invoices
- Materials
- Hardware and Software
- Additional expenses
- Tracking actual costs
Keeping a monthly record of the costs helps in effectively managing the project costs. By checking in monthly, it allows necessary adjustments to be made to the budget or resources, throughout the timeline. This helps to keep the budget in check and the team is aware of the progress.
The achievement of successful project delivery is directly underpinned by focus and attention on the effective and efficient management of the financial dynamic. With a good set of tips such as proper cost tracking by pre-planning your monthly budget, establishing cost controls and measuring your results, you will be able to produce an accurate cost estimate.
To learn more about the specifics of managing project costs and budget, the Project Management for Development Organizations (PM4DEV) has published an e-book on proper project budget management. The e-book aims to serve as a general guide on how to manage and control the project budget throughout the entire project life cycle while relating budget control to the other success criteria. It covers detailed specifics on the 4 main steps of project cost management – defining the budget, executing the budget, controlling the budget and updating the budget.
Click below to download your free e-book
“Project Budget Management”
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Managing Project Costs & Budgets is a training course held from 25-27 March 2020 (Kuala Lumpur), designed for delegates to become familiar with the integration of cost scheduling into project management processes and procedures and understand the importance throughout a project lifecycle of the central role and importance of managing costs. Delegates will learn how to utilise such techniques as the Work Breakdown Structure (WBS); the Work Package and the Cost Breakdown Structure (CBS).
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