To run all the projects money is needed. In bigger project one can get more people and get the things done more quickly and deliver on time by putting more money. But what if one has got limited budget and need to deliver with less resources and on time. This is where cost management will be a challenge. Cost management helps in meeting the deliverables within the budget for both small as well as large projects.
Cost management has following three processes:
• Estimate costs
• Determine budget
• Control costs
Estimate Costs Process: In this process, cost of each work activity is determined. For this each activity is estimated for its time and materials cost.
Determine Budget Process: Here all of the estimates are addded up and baselined. This baseline is used as comparison for all the future expenditures.This is often referred as BAC(Budget At Completion), this is the total money needed to complete the project.
Control Costs Process: This means tracking the actual work according to the budget to see if any adjustments need to be made.
The parameters CPI and CV are very useful in determining whether the project is running within budget or not. CPI(Cost Performance Index) is less than 1 and CV(Cost Variance) is negative means project is running over budget and need to be managed as far as cost is concerned.
Following tools and techniques are used to control costs so that we will not overrun the baseline budget.
• Earned Value Management: This uses Earned Value Formulas to assess the project.
• To Complete Performance Index: TCPI is the calculation that one need to figure out how well project needs to perform to stay on budget.
• Performance reviews: These are the meetings where in project team reviews the actual performance with the baseline. EVM method mentioned above is used for the purpose.
• Forecasting techniques based on earned value numbers to keep the project on track using preventive and corrective actions.
• Softwares for project management and tracking.
• Variance analysis before project goes over budget and can not be tracked back.