Let us face it.
Irrespective of the nature of the project and its objectives, cost control in project management is – and would continue to be an important measure of project success. Unfortunately, many project managers and team members are still not comfortable managing this dimension of project management – they are contented to focus on the technical aspects of their projects. Strangely, project teams do not realize that it does not make business sense to deliver projects when cost control is not assigned top priority.
Think about this – why should an organization invest in a project if profitability would be compromised due to poor project cost control?
Let us, deep-dive, into cost control in project management.
The many different sizes and complexity of projects.
Project duration could range from just a couple of months to years. Further, the level of complexity could be diverse – from simple to very complex; and ranging from low-to-high levels of uncertainty. In this background, the ease of controlling project costs runs across the continuum – from easy to very difficult. With simple and short-duration projects, project costs could be managed on Spreadsheets while long-term and complex projects would need a rigorous approach to cost control – necessitating the use of an online project management software with cost management embedded.
Diversity of industries.
Projects are undertaken across industries from professional services, product development, EPC, Pharma, and others. It is interesting to observe that cost control is very different depending on your industry. Professional services mostly involve costs related to the project team, software (if required) and travel. It is relatively easy for project managers to monitor resources deployed as well as controlling them. Project management tools for time and effort tracking are generally used for cost control.
Engineering, Procurement & Construction (EPC) projects involve multiple elements of costs – people, raw materials, contractors, and other overheads. On EPC projects, raw materials constitute a significant proportion of the overall project costs. If not managed, projects could quickly slip into the red. While project management tool for time and effort tracking are sufficient for people resources, EPC companies must focus on methods such as Economic Order Quantity, Just-In-Time, Value Engineering, and Lean Principles to ensure cost control. Further, while employing the services of external contractors, EPC organizations must ensure that the vendor selection and negotiation processes start early to ensure costs are well-managed.
Pharmaceutical and engineering (automotive, aerospace, etc.) projects experience the same levels of difficulty to control project costs.
The granular level of project cost tracking.
Project teams find it convenient to plan and track project costs at a slightly higher level – leading to inadequate cost visibility and losing control of costs. Irrespective of the industry projects that are very sensitive to costs must be planned and tracked at greater levels of granularity. Project teams must ensure that the project WBS (Work Breakdown Structure) is developed with the appropriate levels of detail and granularity focusing on efficient project tracking and cost control. WBS may have to go down levels such as Phases, Work Packages, Milestones, Activities, and Tasks. Relevant Control Accounts must be defined for management review. Further, the teams must set a project cost baseline and track project costs at the lowest level if they are serious about project profitability.
Illustrative WBS: Source Practice Standard for WBS, Third Edition, PMI (USA)
Too many systems spoil the project management broth!
Most organizations grow organically. Unfortunately, business leaders rarely focus on a holistic approach to managing the technological systems that support the business. The result – organizations running on ‘application islands’ with troubles of systems integration.
It is not uncommon to find organizations investing in a CRM application for sales, ERPs for daily operations, Scheduling software for project management, and Accounting applications for finance. When projects are managed in such a disparate manner, do not be surprised to experience ‘project chaos.’ Among other aspects, project teams are unable to connect the dots – project tasks to effort and finally to cost control in project management. The culprit happens to be a lack of an ‘integrated project management solution’ or ‘systems integration’ across multiple applications.
Disparate software systems
Reliance on contingency reserves.
When surrounded by ‘project chaos,’ project managers resort to digging into the contingency reserves – this practice must stop! By its very definition, a contingency reserve is meant to manage ‘known unknowns,’ i.e., project aspects that could go wrong, but there is no way to pinpoint when such events could occur or their impact. Contingency reserves must not be used to cover up project management inefficiencies. Imagine a project of USD 1million with a contingency reserve of 15% or USD 150K. By not utilizing the contingency reserve, teams could increase the project profitability by a straight 15%! Organizations must have protocols for the utilization of contingency reserves!
The way forward.
Project managers and teams must become serious about the implications of poor cost control and work proactively to manage and protect project profitability.
A few steps could be:
- Invest in an integrated project management system with cost management embedded or drive systems integration between an online project management software and cost management applications.
- Configure a project health dashboard and alerts based on business rules of cost control.
- Groom the project team about cost drivers.
- Baseline and track the project costs – rigorously!
TouchBase is designed keeping in mind the principles of:
- Holistic way to manage projects.
- Configuration to the needs of each industry.
- Integration with existing applications such as ERPs, CRMs, Accounting, etc.
- Deliver one version of project truth – across all project management dimensions.