Cost estimation is one of the main pillars that determines a project’s success. Following a cost management system adds value to projects in multiple ways. Accurate cost estimation by experienced people is the first step as it’s essential to any project.
A PMI report states that 14% of the surveyed IT projects were deemed as failures while 57% of the projects were finished within their initial budgets. This illustrates how critical project cost management is to organizations nowadays.
What is project cost management?
Project cost management is the process of managing cost estimation, fund allocation, and cost control during a project. It's a vital part of every project and crucial to the overall impact and delivery success.
Cost estimation is done at the beginning of a project, taking into mind escalations and overruns. In other words, it gives project managers a slight margin for maneuver. Project managers have the challenge of strict cost management to stay well within allocated funds and accomplish delivery.
The importance of estimating, budgeting, and controlling costs
Undoubtedly, cost budgeting and cost control are the keystones to a successful project.
Estimation takes into account foreseeable hurdles in different aspects of a project. Things like material, workforce, and time are very important parts in the wheel of project management. Budgeting sets the financial boundaries for the project.
A successful project isn’t about budget vs. estimation, it’s about working within predetermined parameters. These stages support a project in different ways:
1. Help prevent overruns and delays
2. Account for unforeseen risks
3. Optimization of resources
4 Steps in project cost management
There are four essential steps in project cost management. They are:
1. Project resource planning
It’s the first step where a particular project is discussed. Planning for each stage of a project is done on paper. Resources include people, equipment, etc. In a work breakdown structure (WBS), resource requirements are mapped.
Read on: Advantages of using software for resource management
2. Cost estimation
Dedicated personnel with knowledge of particular domains then get involved with the estimation. They consider factors like inflation, escalation, procurement of material and staffing, risks, and more.
3. Cost budgeting
The estimation is presented to the budgeting team for approval and sanction of the budget to cover the costs. A realistic budget allocation is needed to cover different aspects of the project.
4. Cost control
Strict control of allocated funds in a balanced manner is essential to successful project cost management.
The cost management process in project management depends upon the accurate working of each of these steps. It’s evident that these will depend on the kind of project. Each project is different from another, and estimation and budgeting need to be customized to fit in with industry requirements.
Read on: Gain insight with ERP project management dashboards
Advantages of using project cost management software
As with most things today, project cost management is benefiting from the use of software. The software is designed to aid at different stages of a project.
There are so many aspects to managing a project that it can get overwhelming at times. So why not use specially designed software to lessen some of the load?
Some of the popular tools used for cost management in project management are for:
- Budgeting – Such tools help set a realistic budget for any given project.
- Time tracking – These tools help estimate the time required to complete a project and allow project managers to handle their resources optimally to get timely results.
- Analytics and reporting – Such tools help analyze the progress of a project, and project managers can visualize whether their project is moving within stipulated guidelines and if it’s on track.
Project cost management workflow with Vault
Just like managing costs, it’s essential to deliver a project on time. In the case of timely delivery, project cost management tools can be really helpful.
The estimate creation process in Vault is fully transparent and can be visible to the ones who have access based on their roles. Vault has a secure project cost management workflow that has a sequential flow. The workflow starts with creating the estimate, approval of the estimate, creating a purchase order, linking the purchase order with an asset, invoicing, and more.
Vault helps manage financial indicators, like project costs, efficiently. Tracking project costs and budgets in Vault is quicker with intuitive KPI dashboards as digital software maximizes ROI.
Transparency in all stages of project management is of the highest importance. Vault helps companies maximize profit with effective project cost management.
Project cost management software, like Vault, helps with automation at every stage of the process. It enables the team to work according to a workflow with approval cycles as required. From estimation to approval, from purchase order generation to invoice maintenance, Vault can handle it all.
The best part of using software like Vault is that it’s open for everyone on the team to see. Less time is lost communicating each new development or detail individually to everyone.
Different parties need to be on board with every change. The use of Vault and other tools makes the whole process transparent and can save time. Transparency is essential for timely and successful project delivery.
Working within approved budgets and delivering results based on targets is the aim of every project manager. The discussed guidelines will help you take decisive steps towards successfully managing project costs. Vault is a feature rich project management software that helps you efficiently track project costs.
Read on: Vault’s Ultimate Guide: Tracking KPIs for project management
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