An effective cost control system should have:
- Planning of the work needed to complete a project
- Estimation of time, labor, and costs
- Clear communication of the scope
- Disciplined budget
- Timely accounting of progress and expenditures
- Reestimation of time and cost periodically
- Comparison of actual progress + cost to the schedule
Cost control does not only mean to keep track of how much money is being spent. It requires a comparison of the actual time, cost, and performance to the planned time, cost, and performance. For example, it doesn’t matter if you are within budget if your performance is only at 50% and you’re behind schedule.
Another purpose of cost control is decision making. Management needs to be able to make decisions based on the project’s updates. Any major deviations from the original plan/schedule/budget may need corrective action.
Budget
A project’s budget must be reasonable, attainable, and based on negotiated costs / the SOW. Historical costs, industy standards are used as the basis for the budget. However, pricing is often based upon best guesses.
Additional factors that need to be taken into account include:
- Overtime
- If the company won’t hire additional resources, some of the work must be accomplished on overtime
- Scrap Factors
- The cost of any additional required materials
- Risks
- Some risks include liability for lawsuits and the company’s ability to gain enough profits
- Hidden Costs
- Including travel, shipping / postage, and workload availability (account for vacations, sick leave, etc.)
8 Comments
Brandon Kresge · March 22, 2021 at 7:20 pm
This is really well formatted. I like the examples a lot. What stuck out to me the most was that it’s not about managing money, but comparing the actual resources with the planned ones. At least for me, managing finances seems like the most difficult part of a project. I feel like the added resources can add up quick, especially the hidden costs. I wonder if there are any ways to try to minimize those.
Autumn Coulton · March 23, 2021 at 4:50 am
Good post, it is very clear in explaining what the cost control is and how it can be found. I agree with Brandon, in that what stuck out to me the most was the need to compare the predicted cost with the actual cost. By being able to re-estimate the time and cost periodically seems like a good way to manage potential additional factors and hopefully stay on top.
Sean Kinneer · March 23, 2021 at 11:10 am
Nice post, Chris. I like the use of pictures here. It really helps show how cost control is broken down. I like how you added that the real time, cost, and performance need to compared to the planned time, cost, and performance. Managing project costs can be tricky especially if a team has little to no experience in a particular project. Having a cost estimate at the beginning can drastically change by the end of the project if the team needs more resources. This could be due to miscalculations early on or unexpected failures along the way. The comparisons between the planned and actual can help future projects.
Trisha Badlu · March 23, 2021 at 1:16 pm
Great post Chris! The example helps to understand how the cost for labor should be calculated. It seems like there’s so much that goes into cost control that it’d be very easy to make miscalculations or forget to account for some costs. It makes sense that industry standards are used as a basis, but you also say that pricing is based on best guesses. If you’re just starting out as a project manager, how do you come up with a reasonable guess if you don’t have prior experience?
Manogna Pillutla · March 23, 2021 at 2:25 pm
This post is very simply put. Good one Chris! Good examples. They made it easy. It can be not easy to figure out right factors to consider for cost control because everything seems important. But your post kind of gave me an idea of what kind of factors will make a difference. And I have the same question as Trisha.
Brandon Sutton · March 23, 2021 at 3:42 pm
I like the pithiness of your post, Chris. Going off the bat with those bulleted items immediately introduced me to the aspects of cost control and prepared me for the remainder of your write-up. Your insight on the wholesale importance of the sum of these factors and not the parts (a project within budget but behind schedule, is moot, being a great example) was quite illuminating. Nice!
Vivian Azar · March 23, 2021 at 4:09 pm
This post was broken down very well. Estimating costs is definitely something that takes time and experience to get right. While working on the SOW budget with my group, we found ourselves frequently questioning if our estimates were reasonable and went back and forth on our overall plan, but it’s part of the learning process. This was a very informative post
Griffin Nye · March 23, 2021 at 7:11 pm
Great post, Chris! You did a great job of outlining all the important aspects of cost control. Like you said, cost control is not just about budgeting money, but about accurately assessing the effort and cost and getting it as close to the actual effort and cost as possible. This makes re-evaluating the costs and project schedule periodically throughout the project very important. Without re-evaluating these costs periodically, especially if the performance is not up to the defined standard, there is going to be a large discrepancy in the business’ accounts which can cause some major problems. Your example was also very useful to understanding the other associated costs that need to be taken into account when estimating cost. I find that travel costs and lawsuit liabilities don’t easily come to my mind when estimating cost, so that was a good addition!