Cost/Financial Management

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Controlling budgets and cost is one of the primary points of focus within a project environment. It forms part of the ‘triple constraint’ and as such must be managed tightly.

The three primary areas of cost management are as follows:

Cost estimating – You should use a combination of tools/techniques to estimate the cost of project work (or changes to project work once inside the lifecycle). These, depending on the level of complexity, may include: management/SME judgment, analogous estimates, historical data modeling, sensitivity analysis and identification and analysis of risk cost. These estimates should be created at a ‘work package’ level and must include an auditable trail from first principles to the final estimate. Once the model has been agreed by both the supplier and the client (this is critical if the model will be used again for future activity) a formal cost estimate, with documented assumptions & data sources, using a consistent methodology should be produced.

Budgeting – The important focus of budgeting is to get the apportionment correct up-front. For complex programmes the PMO, upon consultation with the senior management team, should ensure budget is allocated against the lower level elements within the WBS. These budgets should also be time-phased, against WBS, to give a planned cost expenditure over the programme / project lifecycle. The final figures should be signed-off by cost account managers (who each own the budgets within elements of the WBS). Throughout the programme / project the resource usage should be tracked against WBS (and more than likely at a lower level of granularity than this) to assess how the overall time-phased budget compares against actual spend.

Cost control – It is imperative to actively control the rate of progress on projects. This becomes exponentially more important as you add the complexity of increased projects numbers of interdependencies within a programme. Whilst simple projects are often managed using ‘% complete’ to determine progress against an activity the larger cousins (programmes) need an increased level of progress governance. In conventional programme management this, more often than not, takes the form of ‘Earned Value’ (EV). The basis of EV is to create 2 powerful metrics namely ‘Cost Performance Indicator (CPI)’ and ‘Schedule Performance Indicator (SPI)’. Interpreted in unison these metrics give you a holistic view of progress against the triple constraint (time, cost, quality/scope). Clearly these controls need to be facilitated by a functional enterprise programme management tool (to allow capture of planned spend, actual spend, earned value and budgeted cost).

» Risk Management for Dummies

By Michael Cooch | Published 07/9/2007 | Risk Management , Cost/Financial Management , Programme / Project Management | Rating:

Risk management (RM)…we've all heard of it…we can all describe the difference between risks and issues…but how many of us do more than create a spreadsheet (or equivalent database) which we update sporadically...how many of us when faced with the question …"Do you do Risk Management?" …reply, almost defensively, with a resounding YES…but do we secretly think that we could do more?...do we actually feel that RM is a worthwhile undertaking or just an additional management burden on your project/programme?

Well I'd like to outline, in a few short pages, how I believe you can turn RM around to create real value in the project environment, get buy-in from your senior management and implement something that not only helps you estimate your work better but also helps you manage you budget far more effectively…

Sound like an impossible task in a few pages? Well to be honest, the rules of successful RM are small in number and relatively simple to implement….

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