Introduction
As a project manager, "Uh oh" isn't something you want to hear your financial team say. Running out of funds when working on a project is a surefire way to lower client opinions of your team, sour the quality of your product, or simply kill the project altogether. It doesn't take a project management wizard to be able to tell that cost management is an important part of the project management process for a reason.
So, how do I do it?
Well, that can depend on a lot of factors. Let's keep it simple and start off by defining cost management, and explaining how managers go about performing it.
Project cost management and you
Project cost management, or simply cost management, is all about controlling costs. Got a project? Estimate the cost. Budget it out. Make sure that it doesn't go over budget- and if it does, figure out the best course of action going forward. That's the simple run-down. It's not particularly fun, (unless budgeting is your thing) but somebody's got to do it, and the stakes are high.
Cost management lays its benevolent hands upon your projects long before your teams even begin to work on them. It goes hand in hand with resource management- money is just another sort of resource, after all. With all this in mind, let's take a look at the cost management process!
Four phases of cost management
[Figure 1] Eby, K. (2018, December 7). The Ultimate Guide to Cost Management | Smartsheet. Smartsheet. https://www.smartsheet.com/ultimate-guide-to-cost-management-and-templates
Any modern project has four main phases of the cost management process. The first three of these phases are all completed during the very beginning of the project before execution begins and any work is put in by the teams. The last phase is an ongoing process that continues until the very end of the project. [4]
These phases are: [3]
Resource Planning - This part of the process intertwines with resource management, but it's the foundation upon which all cost management is done. Resource planning utilizes a WBS (Work Breakdown Structure) to define what work has to be done in a project.
Cost Estimating - Cost estimating is a critical part of the process that utilizes various techniques to make an initial estimate of the total project cost. It can vary quite a bit from the actual cost, but we all have to start somewhere.
Cost Budgeting - It may sound similar to cost estimating at first, but cost budgeting is where we put all that guesswork... to work. This is when you actually allocate the funds for the different parts of the project, based on what you estimated earlier.
Cost Control - Finally, cost control keeps track of project costs, ensuring that the team doesn't go over budget, and attempts to minimize costs where possible. All of this control is an active process, carried out via guidelines established during the previous stages.
All of these phases together form the backbone of your cost management plan.
Cost management plans
Your cost management plan is the key to financial success- so far as your project is concerned, at least. It's the big picture of your project's cost management activities. Budgeting, analyzing, controlling, and setting guidelines are all part of the process of developing a cost management plan.
The work your team puts in on carefully following the four phases of cost management will leave you well-prepared to begin work on your product, and most importantly, left with a plan for when things go awry. You'll have estimates to show stakeholders, and guidelines to keep things in check. Constant evaluation of performance will give you plenty of information on where your team is meeting goals, and where it needs to do better. But thanks to your cost management plan, you'll know what you're working with. [1]
Agile in project cost management
Agile is a powerful, popular methodology that's widely adopted for good reason. Progress isn't linear, after all, even if we all wish it was. But Agile introduces a bit of a road bump for teams that need to develop a cost management plan. After all, in Agile, plans are not only anticipated to change, they're guaranteed to.
So how can a project manager build a cost management plan for a project that's iterative?
By building it iteratively.
Strategies in Agile cost management
[Figure 2] Asana. (n.d.). Burndown Chart: What it is and How to Use it (With Example) • Asana. Asana. https://asana.com/resources/burndown-chart
Budgeting and managing resources with Agile can be hard. Things change fast, so your estimations can get blown out of the water equally quickly. So what's a project manager to do? Thankfully, there are a number of methodologies, guidelines, and tools easily available to help keep things on track, and under budget.
Regular budget revisions
A good place to start is by constantly revising the budget at regular intervals, based on work completed. This helps keep the budget as realistic as possible and keeps clients happy. It can't predict large changes to your project workflow, but combined with other methodologies like those listed below, it can be a simple yet very effective method for keeping on top of the tides of change.[2]
Reactionary analysis
Looking at the past is another great option. By analyzing previous projects completed by the team, you can get a good idea of how long you can expect them to take on certain elements of their current one. Unfortunately, this method only works if your team has worked together on projects for a reasonably long time, around half of a year or more. While it's not available to everyone, it can provide surprisingly useful insights a wise project manager will take full advantage of.[2]
Burndown charts
And yet another good tool is the burndown chart. Burndown charts are incredibly useful for project managers in all fields, as they plot how much work has been completed over the working timeline of a project. This allows managers to monitor their team's work rate, and get a good idea of just how far off they are from completion. Using the data from this, the cost management plan's estimates can be a lot more accurate, although they can't account for sudden, large changes in the scope of the project. Still, they can be used to help plot just how big of a cost impact these changes will make![2]
Resources
[1] Bridges, J. (2022, July 22). The Basics of Project Cost Management. ProjectManager.com. https://www.projectmanager.com/training/basics-project-cost-management
[2] Corbin, M. (2022, January 26). Cost Management in Agile Projects [Effective Ways]. Official Teamly Blog - Official Teamly Blog - Your Project Management Resource. https://www.teamly.com/blog/cost-management-in-agile-projects/
[3] Eby, K. (2018, December 7). The Ultimate Guide to Cost Management | Smartsheet. Smartsheet. https://www.smartsheet.com/ultimate-guide-to-cost-management-and-templates
[4] Martins, J. (2022, October 23). What is Project Cost Management? • Asana. Asana. https://asana.com/resources/cost-management-steps
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