Cost control is the process of monitoring the status of the project to update the project budget and managing changes to the cost baseline. Updating the budget involves recording actual costs spent to date. Any increase to the authorised budget can only be approved through integrated change control process. Learn about project management by graduating with a Project Management Diploma read more about this course here. You can also look at some of the other Australian accredited courses visit this website.

Monitoring the expenditure of funds without regard to the value of work being accomplished for such expenditures has little value to the project other than to allow the project team to stay within the authorised funding. Thus, much of the effort of cost control involves analysing the relationship between the consumption of project funds to the physical work being accomplished for such expenditures. The key to effective cost control is the management of the approved cost performance baseline and the changes to that baseline.

Project cost control includes:

  • influencing the factors that create changes to the authorised cost baseline
  • ensuring that all change requests are acted on in a timely manner
  • managing the actual changes when and as they occur
  • ensuring that cost expenditures do not exceed the authorised funding, by period and in total, for the project
  • monitoring cost performance to isolate and understand variances from the approved cost baseline
  • monitoring work performance against funds expended
  • preventing unapproved changes from being included in the reported cost or resource usage
  • informing appropriate stakeholders of all approved changes and associated cost
  • acting to bring expected cost overruns within acceptable limits

What project managers need to know about cost control

Cost control is concerned with understanding why the cost variances, both good and bad, have occurred. The why behind the variances allow you to make appropriate decisions on future project actions.

Ignoring the project cost variances can cause the project to suffer from budget shortages, additional risks or scheduling problems. When cost variances happen they must be examined, recorded and investigated. Cost control allows you to confront the problem, find a solution and then act accordingly.

Project cost control searches out for the causes of both positive and negative variances and is part of integrated change control. For example, inappropriate responses to cost variances can cause quality or schedule problems or produce an unacceptable level of risk later in the project.

Understanding project Inputs for Project Managers

To complete the cost control process you will need a number of inputs. These include the project management plan, the cost baseline and cost management plan, as well as funding requirements, performance reports and information, any change requests and plans and organisational process assets.

The project management plan contains information that is used to control costs. In particular, this is the cost performance baseline and the cost management plan. The cost performance baseline is compared with actual results to determine if a change, corrective action or preventive action is necessary. The cost management plan describes how the project costs will be managed and controlled.

The funds for a project are not allotted all at once; they are stair-stepped in alignment with project deliverables. As the project moves towards completion, additional funding is then allotted. This allows for cash-flow forecasting. An organisation does not have to have all of the project’s budget allotted at the start of the project; however, it can predict, based on expected income, that all of the project’s budget will be available in incremental steps.

Work performance information includes information about project progress, such as which deliverables have started, their progress and which deliverables have finished. Information also includes costs that have been authorised and incurred and estimates for completing project work.

Any work performance information pertaining to the status and cost of project activities being performed should be collected.

From the integrated change control process can include modifications to the cost terms of the contract, project scope, cost baseline or cost management plan. When changes to the project scope are requested, an analysis of the associated costs to complete the proposed change is required. In some instances, such as removing a portion of the project deliverable, a change request can reduce the project cost.

The project management plan and its cost management plan component and other subsidiary plans are considered when performing the cost control process. The cost management plan dictates how cost variances will be managed.

The organisational process assets that can influence the control costs process include any existing formal and informal cost control-related policies, procedures and guidelines, cost control tools and monitoring and reporting methods to be used.

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Published by Inder Chauhan