Hi team, today I would like to look into project cost, not much is likely to happen in a project if there is insufficient funds to maintain the project, or if it is beyond the financial expectation of your customer. It is expected when scoping the project; indicative project cost is included, normally delivered in your Statement of Work or Project Charter. This will allow your customer to budget appropriately for the project. Remember that your project must work within the confines of the budget, so tracking your resources is paramount.
Once you have scoped the project, and hence you are aware of the projects deliverables then a price to perform this work can be calculated and negotiated with the customer. I find, once the cost of a project is placed in front of the customer, then this is the time to work on your negotiation skills. That is the customer normally has a figure in their mind which differs greatly from your own. One way to convince your customer is to highlight the tasks associated with your project including the days/hours your resources will be working, so they can visualise the actual effort involved.. Once the cost of the project is agreed to, and the Statement of Work has been signed off, then it is up to the project manager to track the resources and the finances to ensure there is no cost “Blow Out”.
Project cost is made up of many different components, covering the following, the cost benefit analysis, normally located in the Statement of Work, cost constraints, cost controls within matrix structures and within project driven structures. As project managers we are constantly asked for our cost estimates when pricing a project, remember to always add contingency when estimating a projects cost, within my projects 20% is added to the overall amount to cover for any issues.
In order to develop a budget, resource forecasting is required of each quantity, and how much they will cost, this also includes the effects of potential price inflation. Not all projects can be delivered within 6 months; some projects can cover a period of 18 months, such as Data Centre builds, so price inflation must be factored into your costs. Projects covering a lengthy time period, introduce another issue, plans and schedules set at the beginning of a project life may need to be altered by the availability of alternate or new materials, resources that are at a different rate from when the project commenced.
One aspect of cost estimation and budgeting that is often overlooked has to do with actual use of resources as opposed to how your organisations finance department assumes how your resources are being used. Remember finance departments take a linear view of the world. This may not affect the projects budget, but it will affect the projects cash flow, which must be avoided to maintain continuity. Every expenditure must be identified with specific project milestone, remember these identifiers are needed for the project manager to exercise budgetary control.
Project s rarely run significantly under budget, but it is up to your controls to ensure that the project does not run considerably over budget. It will be a hard sell to your customer if it does, with cost mechanisms in place, tracking project cost is not a complex task, but is mandatory to ensure issues of this nature are avoided, or at least brought to your customers notice before it is too late.
