It has become the accepted norm for projects to finish over budget and well beyond planned completion dates. Unanticipated change orders, unfavorable weather conditions, supply chain issues, etc. can create many challenging situations. However, the successful completion of a project largely depends on the abilities of the team to adequately plan, monitor and control a project to stay on track. Achieving project completion maintaining project specification all within time and cost limitations is a basic requirement for a project success.
Cost is a significant concern throughout the life cycle of a project. Therefore it is essential to build an effective cost plan to manage and control project costs at the onset of a project. This will include cost planning for the project budget, but will also address how costs will be effectively managed to the cost baseline, control costs, and manage cost variances. The cost management planning process documents the methods used to estimate costs as well as the level of accuracy required for estimates. Having highly accurate estimates will help to better control the project from execution to close out.
Cost estimating
The objective of cost estimation is to establish a realistic estimate necessary to complete the project. The Cost management plan, scope baseline, project schedule, human resource management plan, risk register, historical past project records, and project management costs serve as inputs to the estimation process. Costs can be estimated using techniques such as analogous estimating, parametric estimating, bottom-up estimating and three-point estimating depending on the level of accuracy required. Estimates are refined from a rough order of magnitude estimate at initiating through to definitive estimates as the project progresses.
Cost budgeting
Cost budgeting refers to the process of calculating the total cost of the project in order to determine the amount of funding that the organization needs to have available to carry out the project. Inputs required for estimating the total costs are scope baseline, project schedule, resource calendars, risk register, organizational process assets (existing policies), activity cost estimates and the basis of estimates. In estimating the total cost of a project, a manager must perform a risk management activities and include reserves in that estimate to establish a cost baseline which represents the funds the project manager has the authority to manage and control.
Cost aggregation is a process in the budget creation where, activity costs are rolled up to work package costs. Work package costs are then rolled up to control account costs and finally to project costs. Since a project manager is responsible for the budget, sanity checks are performed on the budget taking into account cash flow, cost constraints in the project charter, and expert judgment. Meeting the cost baseline will be a measure of project success, so the budget should be in a form that the project manager can use while the work is being done to control costs and, therefore, control the overall project.
Cost control
Cost control is primarily concerned with cost variance against the cost baseline. It is an essential process for ensuring that costs are carefully monitored and controlled. The process is performed regularly throughout the project, and is performed with more frequency as project costs increase.
Large construction projects can greatly benefit from having a professional and independent cost management service on board through the duration of the contract to monitor and streamline cost controls and protect the financial interests of the owners and investors. A project controls service uses expert judgment and software capabilities to analyze and proactively influence the factors that lead to cost reduction and cost monitoring against what was planned. If the results of what was executed is not in alignment with the cost baseline, then appropriate steps are taken to bring the two back in line. This could either mean changing future plans or changing the way the work is being performed.
The ultimate goal of a project manager is to meet the time, cost, and quality goals of a project. Cost forecasting is a complicated task that will be only as dependable as the experience and skills of a cost manager. There are various tools and techniques managers can use to optimize the cost management process.
A third-party cost management service brings added value to the design and construction team. It is focused on the management of construction cost and value. Specialty Plant Services is a leading project controls company that offers automated solutions to manage construction expenditures. Highly qualified cost managers and software tools help us provide accurate cost estimating and reporting methods. Feel free to discuss your project with us!