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Five Practical Approaches to Effective Project Cost Control

Posted by Ammar Mango on August 13, 2012

Very few project managers (except in construction) get into cost control.  Most are asked to follow the schedule, validate scope, follow up on payment schedules, but seldom do they get into cost control.  Also, literature on how to do this in a practical manner is rare.  When cost control is a priority, I have been following certain themes on projects where cost has been key and they have worked nicely.  Here are my top five tips to better cost control.

1. Estimate, over and over again: Some think estimating is a one time thing.  Estimating cost should be an iterative process that starts with the project idea and should continue until project is completed.  Cost estimates start rough and at high level, then as more information is available they become more accurate; the margin of error and exposure to risk decrease as project plans are detailed throughout the project and as the project draws to a conclusion.  I like to refine my estimates on regular basis, usually monthly, I come up with a new estimate based on new information, and I compare the numbers to my previous estimates, and analyze the differences and their causes.  This gives me an understanding of what is happening on the project and how I can improve.

2. Use the 80 / 20 rule: 80% of cost can come from 20% of your cost items.  So, from the beginning make sure you understand which items are most costly on your project, and find ways to cut down the cost, through better methods, better tools, new techniques, efficient processes, etc.

3. Avoid covering ignorance with buying more expensive items: for example, if I am not good in picking tile, I might go for the most expensive tile to cover for my ignorance.  It is amazing how often people do that on projects.  I might go for the most expensive brand to ensure I get the best “quality.” This approach to assuring quality will cost you a lot and might give the reverse effect.  Instead, make sure you hire the right experts who can help you pick smartly.  These experts will save you money, so do not worry about paying them what they are worth to pick their brains.  Make sure you pick competent AND honest experts to help you.

4. Take into account all costs: Some fall into the trap of missing some of the expenses.  So they think they are doing well when they are not cost wise.  This happens more often than people think.  Things people usually miss include indirect and overhead costs, like costs of salaried employees at headquarters who are not assigned directly to the project, or utilities costs, etc.

5. Consistent cost management method: This should include how payments are made, authorizations, billing, etc.  If cost management method is not documented, then it is probably not consistent and will lead to erroneous cost calculations.  Make sure to work with accounting to accomodate your project needs as well as their accounting / operational needs for cost management to work for you.


2 Responses to “Five Practical Approaches to Effective Project Cost Control”

  1. mohammad abu sbeih said

    Thank you Ammar, you raised a good and critical points. While handling many projects, especially in the construction field, I noticed some points relate to cost control subject:
    1- Project type: the way how cost control is handled differs according to project type; “cost plus”, “lump sum”, “unit rate”, “time and material”, etc.
    2- While performing the “Control” part of cost control there’s always a complaint from project managers about the difficulty to get accurate information about actual cost of materials, labors, equipment utilization, expenses, etc.
    The setup of “Cost Control” function within the organization is very expensive because it requires very complicated technology to get and sort cost data, some may argue that the cost of setup a cost control function is useless If we will not get valuable information (especially who delivers cost + and time and materials projects), many organizations trends to treat the project financially as the operations field – not in “cost control” basis.
    3- If the idea is to perform cost control at each function and deliverable of the project then using ABC “Activity Based Costing” approach with cost drivers is more useful to overcome the issue of getting actual cost data.

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