Project Costing

Cost Management

Project cost management is used to forecast costs and manage them effectively. Projects can be challenging and if unchecked and uncontrolled, can go over the budget. Good Project Cost Management can keep the project under check and well within budget.

For all the project costs, it is the Project cost management that determines the baseline. Effective and efficient cost management makes sure the project runs on track within budget and as per planned scope. Without Cost Management, the project can bleed, costs can go above project profit and result in a loss.

So what are project costs?

• Fixed Cost
  Any Cost which is fixed throughout the project and does not fluctuate.
• Variable Cost
  Any cost which changes in proportion to a product or has a high tendency to variate.
• Direct Costs
  Costs that are directly linked to the budget of the project.
• Indirect Costs
  Costs that are not particularly connected to the project but shared across multiple projects.
• Sunk Cost
  Costs which are already spent, but have failed to generate any business value for the project.

Benefits

What are the benefits of a project costing system? It may seem an easy question to answer but, there is much more to it than just having clear visibility of costs for a job. It can bring so much more to business and its people than just clarity:

• Accountability
  Cost management leads to the accountability of the people engaged in a project. The people or team are assigned tasks with a definite deadline and any delay in completion would become an additional cost. Slippage in the schedule is actually cost accrued which is not healthy for the project’s profit.
• Lowers Expenses
  Effective cost management lowers the overall expenses. By defining proper procedures, the company can save on spending, thus lowering the expenses and facilitates the use of saved funds for procuring other resources or services. This in turn contributes to the overall growth of the company.
• Enhanced Efficiency
  Cost management helps to identify the tasks that are running as scheduled within the budget and those tasks that are exceeding the allocated budget.
• Financial Planning
  One of the main objectives of cost management is organised spending through a disciplined approach in financial planning and accounting. The project manager can create a better budget once the requirements on the various resources is known, so as to invest in the right resources at the right hour.
• Savings
  A pound saved is a pound earned.  The funds that sometimes get spent on the unresourceful tasks can be identified and redirected to other activities that are more purposeful.
• Stress Relief
  When managed well, cost and time management reduces stress. Effective cost control enhances the discipline in spending that lessens the worries about the expenses that may have to be met.
• Operational Efficiency
  Cost Management helps in enhancing Operational Efficiency by tracking the activities that have breakdowns and consumes funds far more than allocated.
• Procurement Value
  Cost management helps in the review of goods and services offered by vendors and empowers the project manager the width to bargain and arrive at a figure that’s an advantage to the company.
• Systematise Technology
  Every project or business process involves technology and companies need to invest. Like automation or tools, sometimes the choice of technology can be questionable as companies overspend or invest in technology that’s not necessary. Cost management imposes budget constraints which makes the project manager more conscious about making the right choice: either step-up technology or just simplify.
• Prioritisation
  If there are multiple projects that mostly engage in time and cost management, not all the projects can be engaged as proposed. So, which project to fund first? Cost management helps in prioritising the projects that deserve the funds.