What is cost management in project management?

Cost management is the structured method of estimating, locating and controlling all costs related to a project. Proper cost management strategies allow businesses to appropriately predict future expenses so that the chances of being budget overrun are drastically reduced.

Projected costs are calculated pre-implementation during the planning phase so that these estimates are approved long before the work starts.

As the project plan is executed, it helps to maintain all finance-related documents and keep track of all expenses so that everything adheres to the cost management plan. Once the project is completed, management compares the predicted cost to the actual cost to provide benchmarks for future project budget cost management plans.

Why is cost management critical in project management?

Cost project management is vital to the health of an organisation’s project as it keeps the project sustainable. Accenture, a global service company, believes that effective cost management is a part of a business’s DNA.

Think about it: you need budget details to map out all the resources adequately. Without proper allocation of resources, quality issues, functionality deficiencies, and sustainability issues are almost inevitable. For example, imagine that you are renovating your company’s office and hiring an architect.

Still, you must agree on the hourly construction rates or building materials. It is almost definite that the final renovation will be different from your liking. Similar to how you need to list the specifications for the project, you need to accurately list out the estimate of all costs to ensure that adequate resources are available to cover them.

What are the benefits of cost management in project management?

Project managers should always consider the advantages of reasonable cost management strategies. Some of the top benefits include:
• Preventing overruns: By allocating costs in the early stages of planning, project managers can ensure that they are not overspending on specific areas and that funds are available for vital areas of the project.
• Mitigate risks: A reasonable budget will give you the appropriate amount of funds to ensure that project success is not compromised if unexpected events arise or unforeseen costs emerge.
• Helps in future planning: Detailed reports about the budget and its constraints can help allocate resources and aid resource optimisation, which can help predict budgets more accurately in the future.

What are the challenges of cost management?

Cost project management is more complex than it seems and has many challenges. Common challenges that plague project managers include:
• Lack of resources: For small project budgets, it is always difficult to secure the required materials and labour to complete the project successfully. Budget constraints often lead to quality issues.
• Inaccurate estimation: Poor forecasting can occur when an inexperienced manager or someone with limited knowledge misunderstands the project’s scope. This could lead to cost overruns and a negative impact on overall profitability.
• Outdated technology: To make exceptionally accurate forecasts, project managers require up-to-date, sensitive, intuitive and industry-specific technology as well as tools, and sometimes these are not readily available to them.

You can also read the “What Is Financial Risk ?” article

Who is responsible for cost management in a project?

Project managers are the ones who have delegated the task of creating cost management strategies. A big part of the role is estimating the total cost, monitoring spending, planning the budget and preparing for any potential risks. The project manager must remain vigilant throughout the process to ensure that there are no budget overruns and that new opportunities to improve profitability are included.

Which project tools help with cost management in project management?

Many tools can aid cost management, including budgeting software that helps to create accurate budgets, time-tracking software (construction timesheet app) that is useful for determining how long specific tasks will take and analytical tools for real-time insights.