How to control the cost as a project manager?
- July 31, 2017
- Posted by: Ahmed Farouk
- Category: Project Management, Supply Chain
Controlling the cost and reducing it is considered one of the most important skills that should exist in every successful project manager, so we here review some of tips and techniques that will help you to do it perfectly.
Plan your budget
You start your plan by assembling the cost estimates into a budget and scheduling your activities. It is this budget that you would have to help you for all payments that you will need to pay and all your expected costs during the project life cycle. The making of this budget, therefore, entails a lot of research and critical thinking. This is the baseline you use to establish your initial cost controls.
Like any other budget, you would always have to leave room for adjustments as the costs may not remain the same right through the period of the project. Adhering to the project budget at all times is key to the profit from project.
Track your costs
Keeping track of all actual costs is also equally important as any other technique. Here, it is best to prepare a budget that is time-based. This will help you keep track of the budget of a project in each of its phases. The actual costs will have to be tracked against the periodic targets that have been set out in the budget. These targets could be on a monthly or weekly basis or even yearly if the project will go on for long.
For example, if you are eight months through a yearlong, $100,000 project, your baseline says you should have spent 65 percent of your budget, your earned value indicates that you have completed two thirds of your work and you have spent $65,000, everything matches and your project is on track. If a value diverges, you have to investigate further where the problem lies and possibly take corrective action.
Earned value technique
In order to identify the value of the work that has been carried out thus far, it is very helpful to use the accounting technique commonly known as ‘Earned Value’.
To apply the technique, estimate the percentage completion of each activity in your project plan and multiply the percentage by the cost assigned to the activity in the budget. The total amount is the earned value for the project and gives the actual percent completion compared with the total cost of the project.
This is particularly helpful for large projects and will help you make any quick changes that are absolutely essential for the success of the project