The Basics of Project Cost Management - Project Management Training

Main ideas / lessons

• Project cost management is essential to keep spending aligned with the plan and prevent going over budget.
• It helps establish a cost baseline that guides actions to control budget performance.
• Without cost management, costs can exceed the project budget, leading to:
  • the company losing money, and
  • customers being invoiced incorrectly.

What “project cost management” involves (core concepts)

• Estimating project costs

  • Build a detailed list of cost estimates at the task level (not just a single total).

• Developing and baselining the project budget

  • Roll up task-level estimates into a project budget.
  • Baseline the budget at the task level so it can be used for control.

• Controlling spending

  • Use the baseline to take action steps that keep the project on track financially.

• Tracking planned vs. actual costs

  • Compare performance:
    • Per task (under/over budget)
    • Overall project (under/over budget)

Project budget template structure (methodology)

• The template includes the project broken into tasks (and possibly subtasks).

• For each task, track these cost categories and how they’re measured:

  • Labor cost
    • Measured as:
      • hours for the task
      • multiplied by pay rate per hour
  • Material cost
    • Measured as:
      • units
      • multiplied by dollar cost per unit
  • Other costs, such as:
    • travel cost
    • equipment
    • space
    • fixed/miscellaneous costs

• For each task:

  • Record budgeted amount (planned)
  • Record actual cost (what it really cost as you track over time)

• At the end, determine whether each task (and the whole project) is:

  • under budget or over budget

Practical tips to improve cost management

• Plan for inflation

  • Short-duration projects may be less affected.
  • Longer projects (spanning years) can see cost changes due to inflation, which may:
    • increase costs or sometimes decrease them depending on conditions.
  • Also consider that unexpected events can change inflation impacts.

• Account for natural disasters

  • Natural disasters can:
    • increase costs and/or
    • disrupt or reduce availability of project resources.

• Include other potential events

  • Example given: union labor impacts, including strikes or related disruptions.

• Add room for unexpected costs

  • Examples:
    • unplanned legal fees
    • penalties that may occur in certain industries
    • higher-than-expected labor costs
    • extra costs if you need a subject matter expert

• Track costs in real time

  • Deviations tend to compound and worsen project impact if not caught early.
  • Real-time tracking enables prompt response.

• Size and scale the effort appropriately

  • Cost management is important even for small projects, because deviations can still damage the budget.
  • For large projects, cost management is typically done with more detail.
  • However, the core process is the same regardless of project size.

Featured speakers / sources

• Speaker: Not explicitly identified in the subtitles (appears to be the video presenter/trainer speaking directly).
• Source/Company mentioned: ProjectManager.com (referred to as offering software; no other sources are cited).