The Importance of Project Cost Management for Small to Mid Sized Contractors

Or How Project Cost Management can save your company.

Project cost management is the process of estimating, budgeting, and controlling costs throughout the project life cycle and ultimately keeping expenditures within the approved budget. Doing so creates a financial baseline against which you can benchmark the profitability status of the project and realign the direction if needed.

The goal is to institute control measures to keep the project from overshooting that budget.

Bottom line: No matter how big or small the allocated project budget is, you must keep expenses within the project's financial limits, or you'll go out of business.?

The five crucial stages of the PM lifecycle are?

• Project initiation
• Project Planning
• Project Execution
• Project Cost Monitoring and Controls
• Project Closure

Project Cost Monitoring and Controls is the most overlooked of the three processes, especially for trades contractors.?

Project Costs Controls involve tracking how a project's spending varies from baseline expectations (or budget) throughout the project's life and actively creating corrective plans when necessary.

A project manager is usually responsible for the project's cost controls, including monitoring invoices and investigating cost differences. Sound project cost control requires a detailed knowledge of the project's planning and execution since the project manager must be able to identify when the project exceeds the projections and understand why.

Cost controls are essential; they keep a project within its budget, a vital element of success. Cost controls make it possible for the earlier cost management steps to be practical and accurate throughout the project.?

Increase revenue

Project cost management ensures you don't overspend, or it will at least allow you to contain spending as much as possible on projects, all while meeting timeline expectations and ensuring project quality.?

If you're a small trades contractor operating on a small budget, effective cost management enables you to use your resources, pursue other projects and keep your cash flow stable.

Prevent the project from going over budget.

To achieve your project goals, you must have solid and effective policies, procedures, and processes. Consistent practices reduce risk and lead to better results, so most (93%) organizations use standardized PM practices throughout their project life cycle.?

One of these should involve reviewing the budget frequently, weekly is ideal. Companies that can quickly adapt to changing market conditions, balance creativity and efficiency, and continuously improve fare better than their counterparts with low-value delivery maturity.

It is essential to highlight the significance of cost management in any project. While it may not completely prevent the project from exceeding its budget, it can aid in limiting the amount of overrun to a manageable degree.

It is possible to determine if you are progressing in the right direction during a project with a set plan beforehand. Once you know you are off course; you can determine possible corrective actions. Once you've implemented and evaluated corrective actions, you can get the project back on its feet financially.

By implementing efficient cost management practices, project managers can:

• Set clear expectations with stakeholders.
• Control Scope Creep.
• Track progress and respond with corrective action.
• Maintain expected margin, increase ROI, and avoid losing money.
• Generate data to benchmark for future projects.
• Track long-term cost trends.

Promote efficiency

Tracking, managing, and controlling key performance indicators (KPIs) throughout the project's life cycle allows you to effectively allocate resources when and where they're needed so work goes as planned.

The greater the deviation between estimation and actual costs, the less likely a project will succeed.?

It would be best to communicate with all team members to gain information. Ask questions, dig into problem areas to see what’s happening to improve performance.

Use a budgeting tool to measure differences from the baseline budget, forecast final costs, and revise the budget if necessary. The emphasis is on timely and precise progress reporting.

You don't need fancy software; a simple spreadsheet or notebook works if you have KPIs to measure against.

The capability of an organization to succeed in current and future projects correlates directly to its Project Cost Management Strategy.

Do you need to develop a strategy for your current and upcoming projects? Reach out.?