If you think project success is all about flashy deliverables and hitting deadlines, then think again. Budgeting and cost management are where the magic really happens. When it comes to the success of your project, robust budgeting and cost management are fundamental tools, yet they are often overlooked. This is despite the vital role that they play when it comes to delivering value within tight constraints. One of the project success factors in The Association for Project Management (APM) guidelines is an emphasis on financial viability.
Who do budgeting and cost management matter – an APM perspective
The main focus for APM is on achievement of project objectives within an agreed time, to an agreed budget and with appropriate quality parameters – this is their definition of success within a project.
When there is effective budgeting and cost management within any project it helps to minimise the financial risk. It also helps to avoid failure in the project as a result of overspending – this is financial risk mitigation. If you want to make sure that you have stakeholder confidence, then you need to ensure that you have well-managed finances in order to build trust with both stakeholders and project sponsors.
Budgeting is a vital tool that will help you to allocate your resources effectively and ensure that you are using them efficiently. When you have resource optimisation you are doing the best that you can with everything that you have to work towards your end project goal.
The key principles of budgeting and cost management – APM-Aligned
Let’s take a look at some of the key principles of budgeting and cost management:
- Early and Accurate Estimation – You should never underestimate the importance of detailed cost estimations at the outset of the project. It is important to draw on APM’s risk management principles to help you achieve this.
- Contingency Planning – It is important to advocate for setting aside some contingency funds within the project budget. These may be needed in order to cover unforeseen expenses. This also aligns with APM’s risk management guidance.
- Regular Cost Tracking and Reporting – Throughout the duration of the project, it is essential to make sure that there is ongoing monitoring of all the actual costs compared to your budget. This will help you to focus on the measurement of your progress.
- Change Control – Having a formal change control process in place will help to manage the financial impacts that may occur within the project as a result of change within the scope. Effectively,it will give you a buffer that will help you to remain on budget.
Budgeting & Cost Management Tools & Techniques
As you will find with all other areas of project management, there are some very good tools and techniques out there to assist the project manager when it comes to budgeting and cost management. These include:
- Work Breakdown Structure (WBS) – When you begin by breaking your project down into smaller easier to manageable components it can make it much easier for you to create a cost estimation.
- Cost Baseline – This is the approved time-phased budget. It is used as a benchmark for performance measurement, and this helps you to make sure that you are aligning with APM’s project controls.
- Earned Value Management (EVM) – A powerful tool that is used for integrating cost, schedule, and scope data to assess project performance from start to finish of your project
- Cost Variance Analysis (CVA) – It is important to be able to identify cost overruns, and also underruns, early on in your project and CVA can help you to do this. It allows you to perform corrective action that is in line with project monitoring from APM.