Underestimating project budgeting is the number one reason for companies exceeding their cost, time, and scope restraints, leading to unsatisfied clients and reputational damage. Therefore, with a meticulous approach to your project cost management process, you can offer reliable quotes and build a name for yourself as a professional, trustworthy organization.
The planning part of your project cost management approach is done well in advance of the project starting and sees a project manager researching everything necessary to complete a project. As a manager, you may not know the ins and outs of every department, so a meeting here or there may help you create the most reliable plan.
Without a complete knowledge of the project you are about to undertake, there is a seriously high risk of delivering over budget or past deadlines. As part of your project cost management, you have to take a deep dive into every aspect of the job at hand from start to finish. Think about the talent you have in-house and take a look at your team calendars to see how much time they can dedicate to the project. `
Next, consider what resources you will need to buy in — this can cover physical equipment, software, intellectual property and much more. But you may not be able to cover everything with your own talent. If you find you need to outsource part of the project, this will have a major impact on your costs.
Your project cost management strategy can be informed by a number of factors. For example, if your project is similar to one you’ve done in the past, you can base your plan on that, making any changes necessary to streamline your strategy.
Take into account both the short-term and long-term goals of the project — you don’t want a quick fix that will later turn out to be problematic. Similarly, if you know one area of your project will be relatively easy and risk-free, think about how you can allocate your extra resources to bolster other areas.
Project cost management also means you need to think about the environment you are working in. Local tax laws and legal permits are some of the first that will spring to mind, but there are even more factors that can affect your planning.
In Germany, for example, the Ruhezeit law means making noise is against the law on Sundays so a construction company simply can’t plan for a seven-day working week.
Initial project plan
With all of the above points taken into account, you can create a clear picture to present to all your stakeholders. Discuss your project plan with your clients and your in-house team for feedback before proceeding to the estimation and budgeting stage.
Estimation and budgeting
Estimating and budgeting costs may be the most arduous of the jobs involved in a project cost management plan. However, it is what sets the bedrock for your work and you can even use it to decide whether it is in your best interests to go ahead with a project. Bear in mind the different types of cost:
Direct costs are those which are directly related to your project, such as materials and software. Indirect costs are secondary and do not link directly to the outcome of your project, such as building rental and security. Fixed costs are those that you can easily factor into your budget — they won’t change. Variable costs, the opposite of fixed costs, are those that change based on time or quantity of use, such as equipment rental.
Your estimate should be a relatively simple task, albeit a lot of work. You simply go through your initial project plan and add everything up together. Your estimation probably won’t be 100% correct as it’s more of a ballpark figure, which makes it quicker and less detailed than the budget we’ll get on to later. There are a few techniques to help you with your estimates:
- Analogous estimating takes a look back at past projects to help estimate for the future. This way, you don’t need to contact every provider to get a new quote, simply look at past expenses.
- Parametric modeling is more technical, using regression analyses or learning curve models. These models still aren’t 100% accurate as they depend on some of your guesswork.
- Bottom-up estimating is quite time consuming as you count up all your costs from the smallest expenses to the largest.
With your standard cost estimation covering the known knowns, your risk analysis deals with known unknowns. Calculate these potential spendings and add them to your estimate so you can deal with unfortunate events professionally rather than making changes to your costs and deadlines.
Make sure to factor in risk to your estimate — contingency plans are essential in project cost management. It would be every project manager’s dream to write up a plan at the start of a project and never have to adapt it, but there will always be hiccups and surprises along the way that cause you to be flexible in your approach. As a rule, it is always better to under promise and over achieve than to over promise and under achieve. So including some leeway to deal with risks is a smart idea.
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Creating a budget
Some project managers will see budgeting as a separate activity to estimating, however the two are so intrinsically linked, we’ve combined them into one step. Your budget is a document that outlines all the expenses and income you expect as part of your project.
It shows the overall estimate of costs as well as a breakdown of the amount of resources assigned to each activity within the project. Furthermore, a budget should clearly point out the funds available at every stage providing transparency for your clients as well as clarity for your team.
Include budget in your project cost management software
A budget in document form is standard practice, but it can be difficult for your team to visualize as a whole. A more easy-to-understand format for everybody is to break down your overall costs by task. Project cost management software like Bitrix24 gives you the option of including the budgeted cost within the task itself.
Create your tasks with the software and add deadlines, cost, and all the relevant people. Anybody assigned to a task will receive notifications with any updates and be able to add all their tasks to their own calendar. This means that your team can see their own responsibilities and time frames, or zoom out and see the overall picture.
Cost control encompasses the on-going actions you take to stay within your budget. The importance of breaking your budget down into stages and activities comes into play here as you can compare what is in your plan with the actual costs incurred as you progress.
Get regular feedback to solve issues quickly
Being in charge of project cost management means you need to be on top of everything — quite a big ask even for small projects. So to keep a lid on things, having clear lines of communication to report issues is your first point of call. As we’ve previously mentioned, communication across your project management software is fast and efficient.
By commenting on individual tasks, you know everyone on the task will get a notification and they’ll already have all the context needed. For good cost control, make your staff feel comfortable raising issues — a hostile environment can lead people to clam up about urgent issues.
Don't stress and get technology on your side
Part of your job in project cost management involves running progress reports at key stages to make sure you’re on the right track. This means that even if your team isn’t aware of delays, or simply hasn’t reported them, you’re not going to be embarrassed in front of your clients when you don’t have answers to their questions. You can also get notifications when tasks are approaching their deadline, so even if you’ve got a busy day, you just need to check your activity stream and you’ll be alerted of any imminent responses you need to do.
Bitrix24 comes with many more automations to streamline your processes when the going gets tough. Finally, note down the expected cost of every task in your project management software and save them as custom fields. This means you can quickly compare actual and budgeted costs, and even track your extra expenses with a different custom field.
Refer to your risk management plan where possible
This is where your contingency plans start paying dividends. Rather than fretting about how to deal with a problem, a well-organized project cost management plan will have a ready-made solution full of tasks that is factored into your budget. If you find your change of direction has freed up some resources, see if you can use any gaps in your team’s calendar to start moving forward with other tasks.
The final step in your project cost management is to review and analyze your performance. Thanks to your careful monitoring of each stage, you can identify areas that went smoothly and others that did not go to plan and look into the reasons why.
When it comes to the end of your project, you’ll be well aware if it is on time and on budget (or not). But just knowing this overview isn’t enough for a top project manager. With your project management tools, you can spot exactly where things have overrun in both time and budget.
By getting down into the nitty-gritty of each task, you can spot exactly where things strayed from your plan and write up an analysis report to look back. Share your report with heads of department and organize a meeting to plan how you can resolve them. Because of your cost control efforts, your team will be well aware of the issues they can expect in the meeting, but with all your top minds together, you can often find solutions you wouldn’t immediately have thought of.
Implementing change in the company
Your project analysis could show that the reasons for you not sticking to your budget were due to inefficient practices within your company. Make sure to take action on these areas before you start your next projects to keep your estimated costs as accurate as possible. These changes could be short term, such as changing providers or shaking up your sales workflow. Quite quickly, you can solve a lot of issues that will help your business in the long run.
On the other hand, some may be more deep rooted. Perhaps your marketing team simply doesn’t have the skills in digital marketing to launch a new product. This would probably entail external training or even hiring a new member of staff. With detailed project cost management, you can make a data-driven proposal to the relevant people to finance these initiatives.
Improving future project cost management
Although it might be hard to admit, you will probably be at fault for some of the errors in your initial planning. Don’t worry, it’s not the end of the world — just make sure to learn from your mistakes.
It is very likely that you will have similar tasks that repeat across all of your projects. Bitrix24 allows you to create templates for these jobs where you can factor in areas you may have overlooked, such as allowing for more time or including extra subtasks.Project cost management is by its very nature a complex beast that is in constant flux. However, by following our four simple steps, you will cover all of your bases to a high level.
This doesn’t mean it’s going to be easy though. Keeping all the balls in the air is hard enough even without external issues interrupting your flow. That is why over 10,000,000 companies use Bitrix24 as a powerful second-in-command to streamline processes and plan their costs efficiently. Not only does it offer in-depth project management tools, but you get a full range of communications tools as well as calendars, a cloud-based drive and segmented workgroups to organize your team. So, to take your project budgeting to the next level, sign up to Bitrix24 for free today.
What is project cost management?
Project cost management is an in-depth plan, continued analysis, and subsequent analysis of all the costs involved in a project. The aim of project cost management is to offer reliable quotes to your clients and work continuously throughout a project to make sure it is delivered on time and on budget.
What are the four types of cost in project management?
All kinds of costs in project management can be categorized into the following four types:
What are the four project cost management processes?
Your cost management process covers all aspects of a project from start to finish. The four main processes are:
- Estimation and budgeting
- Cost control