Within companies, the search for efficiency in cost management as well as the development of cost management methodologies have led organizations to professionalize this field. In order to manage project costs well, the challenge is to understand the company’s environment as well as the different stakeholders. This often falls on the shoulders of the cost manager, the central liaison between project, finance, and management teams.
Cost is always at the forefront of projects, especially when the project’s outcomes are determined by its financial success. Who then is responsible for monitoring and controlling the project’s costs? That’s right, the Cost Manager. They are the link between the project, financial, and management teams.
There are several functions of cost management within projects and companies. Depending on the information sought, the input data can be delivered by different key players. Similarly, those responsible for input data and those interested in cost analyses may vary. Let’s take a look at each to understand how these roles interact with the cost manager and how they support the project.
Now that we’ve looked at the environment and the different stakeholders who interact with the cost manager in a project, let’s look at how cost management is carried out within a company.
As we outlined in our first article, all organizations must follow certain “rules” or financial regulations, which are then translated by the company and passed down to the project team. These are the rules that will define the cost reporting structure as well as the processes used by the organization.
How then does the organization’s cost strategy affect projects? And how does the Cost Manager keep projects in line with the company’s financial expectations?
The cost manager uses a set of tools and methods to plan for, follow, and update the budget throughout the project lifecycle. It’s a constant effort to understand where the project is financially, what is expected, and how to stay on track with those expectations.
This becomes challenging when changes take place, and cost is usually at the forefront of change. For example, if a business encounters a financial set-back, they will likely have to reduce project funding. Or if an unexpected event causes a project delay, the additional time and resources needed to recover the project will likely incur additional cost.
Let’s consider the iron triangle of project management: scope, cost, and time. These three constraints impact the quality of a project’s outcome. Therefore, the cost manager is responsible for the cost aspect to ensure the quality is maintained. To do so, they can perform several budgetary exercises, or follow the company’s defined financial processes to manage the project’s budget. The challenge is to quickly understand where the project and the management committees align to ensure effective cost management.
For this, the majority of companies provide processes and tools. A company often has an enterprise resource planning (ERP) system to manage costs, but at the project level we often find Excel or Google Sheets to process the extractions of the software package.
Regardless of which tools or methods the company chooses, there will always be a focus on keeping costs to a minimum while maximizing output, which the Cost Manager facilitates. Even for companies who take an Agile approach, the financial outcome of projects matters. Their “iron triangle” may be inverted to fix time and cost while incrementally delivering on scope; however, the end result must meet stakeholder expectations and project delays can still occur, both of which inevitably impact cost.
Good cost management is essential for any organization and/or project, regardless of their size. Whether your team consists of a single cost manager or an entire team, their roles allow your company to control your budgets and to anticipate any deviations that could occur.
In this article series, we have reviewed what cost management is, what types of costs exist, what the different phases of cost management are, and finally who the key players are in managing costs. We hope that this allows you to better understand the concepts of cost management and apply them in your company or projects. Need help getting started with your cost management? Ask us, and we’ll put you in touch with our cost management experts!
This article series was written by Aurélien CRÔNIER and Mehdi DARD with contributions from Fanny DA SILVA and the MIGSO-PCUBED Cost Management Community of Practice.
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