Cost Planning and Management System
Cost planning and management is a crucial part of project management. When done well, cost planning helps project managers develop accurate budgets and helps monitor project costs over the course of the project. Cost planning ensures that project managers can track the project’s spending and remain within their budget.
Cost planning refers to the process of estimating the costs of a project from the preliminary budget to the completion budget. This includes all costs related to the total resources, materials, equipment, and services required to complete the project. It also includes labor costs and overhead costs.
A successful cost planning system integrates the activities of estimating, planning, controlling and reporting project costs. As part of this system, project managers must carefully monitor project costs in order to detect any potential problems or cost overruns that may impede the project’s overall progress. Additionally, cost management allows project managers to evaluate opportunity cost if there are alternate solutions that may reduce the overall project costs while achieving the same goal.
The whole cost planning and management system is based on three essential elements. These elements include estimates, budget and control. Estimates refer to the process of working out a project’s cost on paper from the available information. Budget includes a detailed description of the costs related to the project, the project’s agreed budget, and any adjustments that may be required. Control is the process of monitoring and controlling the spending related to the project costs.
To be successful, cost planning and management must be addressed early in the project planning stage. This means that project managers must assess the costs associated with the proposed project and to determine what resources are needed to even begin the project. Additionally, project planners must also consider cost overruns and alternative solutions that may reduce costs while still meeting project objectives.
Once the project has been approved, project managers must develop a comprehensive cost plan that outlines how the project costs will be managed. This plan should include detailed cost estimates, project budgets and detailed cost control plans. For large projects, it may be beneficial to have a separate cost control team in charge of overseeing project costs.
A detailed cost control plan should account for all costs incurred during the project. Additionally, the plan should detail problem solutions should there be any cost overruns. Advance Purchase Orders, Change Orders and other tools should be used to minimize cost overruns and control the costs of the project. It is also important that project managers have complete visibility to all project costs, so that overages and cost overruns can be identified early.
Cost planning and management is an essential part of any project. By doing cost planning and management well, project managers can ensure that their projects are completed within budget. A proper system of cost planning and management can also help ensure that projects remain under budget and that any costs overruns can be identified quickly and dealt with in a timely manner.
