TABLE OF CONTENTS Managing costs in projects requires a disciplined approach to estimating, budgeting, and controlling expenses. This process starts during the planning phase when estimates are made to determine the most likely total project cost and establishing a project budget. The project budget is the document that lists all planned expenditure categories and the amounts for each category.
Variances between the budget and the actual cost affect the project's total cost. Changes to the scope or duration of the project also have implications that usually increase costs. Inefficiencies in productivity and discovered new work negatively impacts the budget.
Controlling costs is achieved by tracking expenditures and comparing them with the budget. Tracking expenditures must be a proactive approach to collect expenditures in real-time for comparison and analysis. The result of the analysis forms the status and progress report for the weekly review of expenditures.
A major challenge for controlling costs is the timeliness of capturing expenditures. Using corporate accounting systems will often delay the accumulation of expenditures for as much as 45 days. For example, it is in the interests of a company to delay paying contract costs. A delayed payment of 30 days following invoice from the contractor does not give real time information. Projects typically work in a seven-day time frame and act upon variances in that window.
Project costs are managed differently by different organizations. The reason for the unique management approaches is the need for detailed...
