In this article we will talk about:
One of the major problems related to project management is the ideal cost control. It does not matter if we are talking about software projects, building a building or consulting, it is amazing how project managers (maybe even yourself) continue to lose their hand in cost management as a whole.
I'm tired of seeing projects getting up to 100% above what was budgeted at first and that's what we're going to talk about today, how to control those costs in the best way possible.
The first step of any project is to define what will be done. In our case, we did a market research consultancy, a marketing plan and a financial planning:
With the initial details of what needs to be done defined, it is worth setting deadlines, deliverables volume and project time as a whole:
Obviously for everything you do related to the project there will be a cost and this is where our saga begins to make a good cost management in project management. Regardless of the type of project, for each step you need to do a rough survey of how much you will spend. This will be your scorer while making budgets and spending throughout the project.
In our case, we had the following planned costs:
- Market Research - R $ 25.000
- Marketing Plan - R $ 10.000
- Financial Plan - R $ 15.000
These amounts total a budget of $ 50.000 for the three steps:
Now we have to get our hands on the dough and start managing the project costs. As expenses are incurred, ideally you should make the launches in one project management worksheet, so you can track all the information and keep track.
Let's see how the costs of our first stage, market research, where we spent with hiring and training of the team (R $ 13.000) to apply the questionnaire, the days of application itself (R $ 5.000) and, finally, data tabulation (R $ 2.000):
Note that of the R $ 25.000 budgeted for this step we only spent R $ 20.000, making a surplus of R $ 30.000 still in our budget for the next two steps. In cost management there is not enough care, it is always good to keep an eye on the warnings that the spreadsheet provides, to get a view of the whole.
It's pretty cool to see that we have not yet exceeded 50% of the budget and 60 days before the end of the project is missing at the end of the first step. I like to see the deliveries of milestones as milestones in cost management and essential items for tracking expenses related to each deliverable.
Now, continuing the cost control of the project, we will move to the costs of the marketing plan step, which essentially involves the purchase of sector analysis reports (R $ 15.000) and visits to competitors (R $ 1.000), totaling R $ 16.000.
Since we had budgeted only R $ 10.000 for this step (error in the initial planning of expenses), we ended up having a "loss" in the stage of R $ 6.000 and a delay of R $ 1.000 in the costs of the project as a whole. Just as we did in the first deliverable, it's worth keeping track of your budget balance:
Note that although we have a spare of 14.000 for the last step, we already have more than 70% of the budgeted amount spent and that 37 days to the end of the project are still missing. Typically, when the project manager is not looking at this part of the costs, it is precisely at this late stage that the financial problems of the project can occur.
That's why every manager who manages costs in the right way tracks expenses along with the overall project schedule. See how this is done in our project management worksheet:
As the steps are completed, the project manager is ticking OK and following the days where he / she has activities. On the other hand, in another tab of the worksheet, you can follow an overview of the project completion percentage. In our case, since we have 2 completed steps of 3 possible, 67% of the project is complete with the same 37 deadline for completion.
Now just continue filling in for the next step. For financial planning, a third-party audit (R $ 10.000) was contracted and costs were incurred to prepare the final report (R $ 5.000):
Although this stage was exactly within the budget, due to the marketing plan costs, the project as a whole had a negative balance of R $ 1.000, exceeding the planned value.
Because 1.000 is very little and represents only a deviation of 2% from the total planned cost, we may even consider it to be an irrelevant loss, but sometimes you can see projects bursting your budgets by a large percentage of your total. In such cases, I strongly recommend that you redesign the cost management that may involve:
- Requests for budgets with new suppliers
- Internalization of activities that would be outsourced
- Decrease in the quantity budgeted at first
- Cut of planned items
Obviously, all these items are restrictive factors and one must be very careful so that they do not affect the quality of the project as a whole and the perception of quality that the client will have of it. In many cases it may even be necessary to accept the injury to not have this kind of problem. It will all depend on your relationship with the customer and how the project manager deals with those difficulties.
Another exercise that can help with this cost management is to do a graphical analysis of the planned expenses and see if there is any critical step. According to our initial budget, we clearly see that the marketing plan step could give us trouble.
If you've followed all the steps I've explained, you're sure to be closer to being a manager or project analyst who's concerned with cost management.
I believe that the only thing missing now is to bring this concern to the practice of your projects. In essence, you have to always remember:
- Make your project's cost budget (in stages)
- Control costs for each deliverable
- Track project completion percentage and buy with costs
- Make adjustments when needed
In my opinion the best way to follow these steps is with the project management worksheet of LUZ, I hope it helps you to be a master at cost management and project management.