Controlling project costs: The 5 practices that work

Navigating the complexities of project cost control can feel like a maze. For project managers, it’s a tough job filled with unpredictable market changes, shifting project scopes, and those unexpected surprises that can throw things off track. But getting the hang of project cost management is essential to hitting all your project goals. No stress! Here are five practices to help you manage costs effectively and keep your project running smoothly.

1. Setting realistic budgets and goals

The foundation of good cost control is setting realistic budgets and goals. This first step sets the financial direction of your project and directly impacts cost control efforts. Here’s what you need to do:

Nail down the project scope

• Make sure everyone knows exactly what needs to be done. Get agreement from all stakeholders to avoid any surprises later.
• Figure out what resources, skills, and tech you'll need to hit your project goals.

Plan for risks and contingencies

• Perform risk assessments to spot potential challenges that might impact the budget, including those tricky-to-predict ones.
• Set up contingency reserves to cover unexpected costs, based on your project's risk profile and past data.

Get stakeholder insights

• Involve stakeholders in the budgeting process to align on expectations and project goals.
• Make sure the project goals are doable within the proposed budget. If not, it might be time to revise or prioritise.

Keep it real and flexible

• Be accurate in your cost estimations. Avoid being too optimistic or too pessimistic.
• Build the budget with some wiggle room to adjust as the project progresses and new information comes in.

Review and adjust regularly

• Regularly revisit the budget as the project moves forward, in response to developments, scope changes, and actual spending.
• Have a formal process for handling changes that affect scope and costs, evaluating each change for its impact on the budget and goals.

Communicate clearly

• Keep the project team and stakeholders in the loop about the budget to ensure everyone knows the financial constraints and expectations.
• Keep detailed records of all assumptions, decisions, and changes affecting the budget. This will be invaluable for current and future projects.

2. Spotting potential cost drivers

Once your budget is set, identifying and planning for potential cost drivers is crucial. These are the factors that, if unmanaged, can inflate project costs. Here’s how to stay ahead of them:

Analyse the project thoroughly

• Break the project into its parts using a Work Breakdown Structure (WBS) to spot where costs might rise.
• Look at historical data from similar projects to see where costs have overrun before.
• Stay updated on market trends that could affect project costs, like material price changes or labour rates.

Engage stakeholders and teams

• Talk to stakeholders to get their insights on potential cost drivers based on their expertise.
• Facilitate discussions with cross-functional teams to gather diverse insights on where costs might exceed the planned budget.

Use tech and data

• Use data analysis tools to identify patterns and trends that could signal potential cost drivers.
• Track and report on cost-related metrics proactively with project management software.

Train and get expert help

• Train your project managers and teams on cost estimation and control to enhance their ability to spot cost drivers.
• Bring in external experts for specialised knowledge that can help identify potential cost drivers.

3. Creating a baseline for cost tracking

Setting up a cost tracking baseline is essential for ongoing financial oversight. This baseline serves as a benchmark, comparing estimated costs against actual outlays and integrating approved changes in scope. Here’s how to create an effective cost tracking baseline:

Get those cost estimations right

• Make sure your cost estimations are thorough, covering all aspects of the project, including direct and indirect costs.
• Validate your estimates by benchmarking against similar projects, using historical data, or getting expert opinions.

Break it down in detail

• Use a Work Breakdown Structure (WBS) to break the project into smaller parts, making it easier to estimate and track costs accurately.
• Align the WBS with a Cost Breakdown Structure (CBS) to categorise different types of costs within the project, allowing for more granular tracking and management.

Include all costs

• Direct costs: Include all direct costs such as labour, materials, equipment, and services.
• Indirect costs: Factor in indirect costs such as administrative expenses, overheads, and other incidental costs.

Integrate with the schedule baseline

• Combine the cost baseline with the schedule baseline to see how cost allocations are spread over the project’s timeline.
• Load the costs into the project schedule to facilitate earned value management (EVM) for performance measurement.

4. Keeping up with regular project cost reviews

Regular project cost reviews are essential for effective cost control. They help ensure the project stays within budget and on schedule, providing a chance to spot and fix issues before they get out of hand.

To make your cost reviews effective, keep these practices in mind:

Schedule regular reviews

• Set up cost reviews at regular intervals throughout the project lifecycle, like weekly, bi-weekly, or monthly, depending on the project's complexity and duration.
• Align cost review meetings with major project milestones to assess cost performance in relation to project progress.

Prepare in advance

• Gather all cost-related data before the review, including actual costs incurred, committed costs, and forecasts.
• Use standardised templates or software for presenting cost information to maintain consistency and ensure nothing is overlooked.

Get the right people involved

• Include key team members from various functions like project management, finance, procurement, and other relevant departments.
• Bring in stakeholders who have a vested interest in the project's cost performance, such as sponsors or clients.

Review and compare against baselines

• Compare actual costs against the cost baseline to identify variances.
• Use performance metrics such as Cost Performance Index (CPI) and Schedule Performance Index (SPI) to gauge cost efficiency and progress.

Analyse cost implications

• When variances are identified, perform a root cause analysis to determine why they occurred.
• Assess the impact of any cost variances on the overall project budget and timeline.

Adjust plans and actions

• Develop actionable steps to address any issues uncovered during the review.
• Make necessary adjustments to the project plan and budget to keep the project on track.

5. Switching to automation tools

Digitalisation and automation have significantly changed how we control project costs. Modern tools blend technology with financial management, and Priofy is leading the way with advanced project and financial management software that automates and streamlines cost control processes.

Automation helps reduce human error, frees up team members to focus on more strategic tasks, and provides real-time data for better decision-making. When switching to an automation tool, consider the following:

Carefully select your software

• Conduct a thorough needs assessment to understand what features you require from an automation tool to support your cost control processes.
• Choose software that can scale with your project needs and integrate smoothly with other systems you may be using, such as ERP systems, accounting software, or other project management tools.

Plan the implementation

• Plan for a phased rollout of the new tool to manage the transition effectively and minimise disruption to ongoing projects.
• Customise the software settings and features to align with your organisation’s project management methodology and financial processes.

Migrate your data

• Ensure that the data being migrated into the new system is clean, accurate, and up-to-date.
• Carefully map how existing data will fit into the new system, considering any differences in data structure or format.

Provide training and support

• Provide comprehensive training for all users on how to use the new software, focusing on how it will be used for cost control.
• Have a support system in place to assist users with any questions or issues that arise as they use the tool.

Wrapping it up

Keeping project costs in check can feel like juggling a million things at once, but with a bit of strategic planning, regular monitoring, and the right tools, it’s totally doable. That’s where Priofy comes in. Our tool is built to help you navigate the tricky bits of cost control with ease. From proactive budgeting to real-time tracking and detailed reporting, Priofy has got you covered. Plus, with an intuitive interface and top-notch analytics, managing your finances becomes a breeze. And don’t worry about the setup – we offer personalised onboarding and support to get you up and running smoothly.