The Key to Effective Cost Management

Being a project manager means that you keep a lot of balls in the air at the same time. You need to manage people, stakeholders, productivity, and most of all, your budget. Keeping costs under control can be one of the most challenging parts of successfully finishing a project. Here are some keys to effective cost management that will help you stay on track.

Estimate the Project Correctly Up Front

One of the biggest problems with cost management in many organizations is that projects are not priced correctly in the beginning. Whether it’s from inexperience or unwillingness to face conflict, many managers estimate the project too low.

Start by making sure you have the right data as a foundation. Where did the cost estimates for materials come from? Are they outdated? What about staff hours?

Secondly, what resources do you need to continue the new initiative once the project is complete? Don’t undercut your hard work by forgetting to budget for rollouts, additional monitoring, and future updates.

Finally, build in a buffer. There are always unexpected expenses or additional resources you will need. You want to build your project budget plan so that surprises don’t derail your project.

Define Project Scope Clearly

A major challenge to your budget is scope creep. This happens when expectations are not clearly set at the beginning, and stakeholders start to ask for additional deliverables.

Of course, every expansion of the project costs more money. Stakeholders become upset when they are told no, but are equally upset when additional time or financial resources are needed.

The best way to handle this is to define the scope of the project clearly upfront. Here are some tips:

• Get clear requirements upfront. Don’t allow “I’ll know it when I see it.”
• Involve all stakeholders from the beginning. Don’t leave anyone out.
• Fully understand the complexity of the project and estimate costs accordingly.
• Have a process for reviewing and approving changes during the project to avoid random updates.

When you define your project scope and protect yourself from changes midstream, you’ll be much more likely to finish on time and on budget.

Project stakeholders become upset when additional financial resources are needed. Click To Tweet

Involve All the Stakeholders

One of the worst mistakes you can make as a project manager is to exclude one or more stakeholders. You may not do it intentionally, but not making sure you have everyone present is a formula for failure.

Sometimes stakeholders are simply forgotten. It’s easy to include the marketing department but forget sales. But similar departments are not the same, and leaving someone out can cause hard feelings.

Other times stakeholders are left out intentionally. Someone who is hard to work with, or causes a lot of conflict, can seem easier to skip. You might assume they will agree when they are brought in later.

However, the hard feelings can make them even more difficult. They may object to a variety of little things along the way. Or, they may ignore the social pressure and refuse to approve the project at all.

Save yourself the heartache and headache. Include everyone from the beginning. It will save your sanity and your cost management efforts.

Provide Support and Accountability for Your Team

Your team needs to be empowered to succeed and held accountable for their results. When you provide both aspects, your project team will be more efficient and effective.

No team can succeed without the right tools in place. If the project has been estimated appropriately, it shouldn’t be a problem for your staff to have what they need to achieve their objectives.

On the other hand, if something additional is needed, it’s up to you to stand up for your team and ask for the resources that they need. Offer a tradeoff in another area, or explain how the investment will add additional value.

When your team has been equipped for success, they will be more motivated and willing to do timely and effective work. You can hold them accountable for their results.

Don’t put off addressing concerns. The sooner you get problems sorted out, the sooner your team member will be operating at their best. Overlooked issues lead to problems with cost management, morale, and more.

Reduce Project Complexity

The more control you have over the project, the more likely you are to be able to keep it within the boundaries you set. Unfortunately, it’s easy for projects to get overly complex.

The more people you have, the quicker and more efficiently you can reach your goals. However, the more likely you are to need additional resources. You can also have more conflict.

The more deliverables that you have as part of your project, the more complex it will be as well. You have a lot more possibility for scope creep when there are too many stakeholders also.

In so far as it’s your control, reduce the complexity. Balance the size of your team with your need for speed. Carefully control deliverables, and set clear expectations with stakeholders.

Know What Success Looks Like

One thing that trips up project managers is not knowing exactly how success is defined. It’s easy to keep adding elements, spending time, and spending money when the ending is vague.

Be sure that when you define the scope at the very beginning, you’re careful to set clear “victory conditions.” How will you know when you’re done? Will your stakeholders agree?

There’s nothing more frustrating than getting to a point where you’re ready to complete the work, only to discover that a stakeholder expected something else. Going back to your team and telling them there’s more to do is hard enough.

Cost management is almost impossible when there’s unexpected additional work. Avoid the problems by defining your success conditions from the beginning, and making sure everyone agrees.

Cost Management Leads to Success

As a project manager, you want your teams to succeed. You want every project to come in on time and under budget.

By following the best practices above, you’ll be positioned for exactly that result. Interested in more? Find out how we can help you today!