Whether you are creating a new product, designing a facility or altering a key process, it’s challenging to forecast – as well as manage – project costs effectively. In fact, the job of cost management is so challenging that almost half of all large IT projects run – on average – 45% over budget and 7% over time.
What Is Cost Management?
The term ‘cost management’ refers to the activities which concern the planning and controlling of a project’s budget. Effective cost management makes sure that a project is completed on budget and is according to its planned scope. As one assesses the success of a project – at least – in part by its cost performance, cost management is a prime determining factor of project outcome.
Cost management actions are conducted during the entire project life cycle, from planning as well as budget allocation to regulating costs during project execution and assessing a project’s cost performance when the project is complete.
- Spend management,
- Cost accounting, as well as
- Cost transparency.
Cost managers sometimes utilise these terms as loose synonyms for the broad cost management function.
Designing The Template
When you design a cost management template you may decide on any number of relevant aspects that will help you manage costs and add columns accordingly. These may include, for example:
- Actual project cost as a percentage of costs that have been budgeted for
- Percentage of projects completed on budget
- Percentage of projects completed on time
- Average time ahead or behind schedule for primary projects
- Actual main project hours as a percentage of hours that have been budgeted for
Cost management consists of four processes. These generally stick to the sequence that follows — as a project goes from the planning board and finishes at reality.
Part of the commencement stage of a project, resource planning utilises a work breakdown structure — which is a hierarchical depiction of all project deliverables and the work required to complete them — in order to calculate the full cost of resources that are required to complete a project successfully. Project managers usually determine required resources for each work breakdown structure component and then they add them so as to generate a total resource cost estimate for all project deliverables.
Cost estimating is the iterative process which utilises a variety of estimating techniques in order to determine the entire cost of completing a project. Cost-estimating techniques differ widely in their approaches to computing project costs. They stretch from conceptual techniques, which draw mainly from historical experience and expert judgment in order to determinative techniques which estimate costs on a component-by-component basis.
When you’ve created satisfactory estimates, you will be able to finalise and approve the project’s budget. Cost managers normally release budgeted amounts in stages in accordance with the level of a project’s progress. These allocations involve contingencies and reserves.
Cost control is the practice of quantifying a project’s cost performance in accordance with cost and schedule baselines which provide points of comparison during the entire project life cycle. The specific needs for effective cost control are set out in the project management plan.
Project management is a vital skill for everyone in the media to have. If you want to add project management to your skillset then you should do our Project Management For The Media Course. Read more here.
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