Project cost management is the process of tracking and controlling the costs associated with a given project. This occurs by monitoring the various factors that contribute to the cost of a particular job and avoiding issues that might cause a cost increase. It is important to the success of a project because increased costs result in decreased profits.
A number of things can contribute to escalating costs. One such factor is known as scope creep. This is what happens when a client is allowed to add new requirements or tasks to a job. Good project cost management practices alert the project manager to scope creep and allow the company to make a decision about whether to charge the client for the additional work or provide the work at a loss.
Delays and mistakes can also contribute to cost problems. For example, failure to order the correct materials the first time will increase shipping costs and may also cause a restocking fee. Additionally, failure to order the proper materials on time may mean that the company will pay rush charges for faster delivery. A cost management process should identify potential problems in advance so they can be avoided and should remind project participants of deadlines that, if missed, can create additional costs.
Project managers should take into consideration both hard and soft costs. Hard costs include such things as materials, supplies and cost of subcontractor services. Soft costs include labor expended by internal employees and the cost of capital.
Project cost management can also involve tracking cost savings. These savings should be reflected in the final project budget and might be used as an example of the manager’s abilities. In some cases, particularly where a savings was both substantial and unexpected, a vendor might opt to share the savings with a client as a gesture of goodwill.
Numerous tools exist to assist in project cost management. These can be as advanced as computer programs especially designed to track actual costs against projected costs. A simple spreadsheet, however, can be enough to track small projects.
Project cost management is critical to the financial success of a project. The process can have other benefits, as well, however. For example, if project estimates are consistently incorrect, there may be a problem with the estimating process. If a particular supplier consistently charges more than the original estimate, it may be time to investigate other suppliers who can offer more accurate pricing up front.