Taming the Budget Beast: Controlling Project Costs

With the economy stumbling, companies are looking ways to cut expenses. Program managers are reviewing their current project portfolios, looking for those projects which will provide either an immediate return on investment or substantial costs savings. Those projects that no longer make financial sense will be postponed or cancelled. If your project does survive the review process, it will most likely remain under management’s microscope. As a project manager, you will need to aggressively manage and control project costs, use cost performance measurement tools, and keep management informed of the project’s performance.

Project cost management begins in the project planning phase. Good project management practices, especially those that support risk management, cost estimating and communication can help focus the team and align all resources with the overall plan.

 

The outputs from the risk identification processes are essential to managing the project. Spend additional time identifying budget risks and calculating their potential impact, both positive and negative, on the budget. For example, if the project will require the acquisition of numerous technical components, consider the budgetary impact of ordering these components early. The risks associated with a “just in time” approach may no longer be fiscally acceptable, considering the costs of expedited shipping. Conversely, consider the positive impacts of delivering the project early. The expected revenue may be greater than the costs associated with expediting the project.

The cost estimating process yields the project budget. When cost is the primary project constraint, then the cost estimating process must be especially rigorous. Spend additional time gathering quotes, reviewing previous projects, and defining the resources that will be required to complete the project. Use all of the planning and management tools available. Create a WBS and use this to define project resource requirements and factor in the schedule management plan and project risks. Finally, do not be tempted to under price your services in a bid to win the project. While this strategy often leads to additional work, there is risk that the project will encounter serious cash flow issues, and, at the extreme, cause project cancellation due to lack of capital.

Other items to consider include:

Quality Management — a quality management plan defines project standards and provides the tools necessary to ensure that the project meets stated business objectives. In the project plan, specifically include product quality audits. This will help prevent re-work, which would adversely impact the project budget.

Resource Human Resource Management — If additional resources are required, advertise directly. Professional online networks are a great place to start. If a recruiter is absolutely necessary, negotiate for a multiple hire discount. Also consider utilizing students. Internships offer benefits to both the employer and the student – the employer has inexpensive access to intelligent and motivated staff and the students gain exposure to industry.

Communication Management — Control project costs by travelling only when necessary. Cut back on the face to face team meetings and take advantage of IP technologies such as web based meeting tools and teleconferencing solutions.

Procurement Management — Most projects will require the outside purchase of equipment or supplies. Take advantage of established vendor relationships to negotiate price or favorable terms. Less costly alternatives that are suitable, though not necessarily optimal, may also be available and should be considered.

Operations Management — While these costs usually only indirectly impact a project’s bottom line, they may directly impact availability of capital funds. A penny saved is a penny available for a project. So, start “thinking green.” Stop wasting paper, turn out the lights, turn off your computer, and moderate heating and cooling. These efficiencies impact the organization as a whole.

Finally, solicit input from project team members and your customer. The person performing the work is the expert, and hence the best resource for making the process or task more efficient and suggesting overall strategies for controlling project costs.

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