One of the main pressure points in resource allocation tools are cost and profitability. The task of calculating multiple numbers and balancing direct and indirect cost variables is challenging. The stress to get it all right can give even the most experienced project manager sleepless nights.
In this blog we’ll cover how cost management can help you manage your project budget in a systematic manner that’s easy to calculate. We will also dive into what cost management is, why it’s important, and how resource allocation tools can help you manage your project finance practices.
Cost engineering or cost management is a systematic approach to managing and optimizing costs through a project or product life cycle. It addresses the issues of profitability, planning, and budgeting. When cost engineering is done properly, one increases their chances of completing the project within the agreed budget.
Cost engineering includes estimating, budgeting, and tracking project costs to ensure the project remains profitable and is delivered on-time. A key aspect of cost management is accounting for any possible deviations from initial project costs and progress.
Here’s an example of a scenario a cost engineer would work on. The nursing department at a hospital unit goes on strike. A part of cost engineering is estimating the potential setback this strike would cost and the impact it would have on overall patient care and other key performance outcomes.
Global consulting giant, Accenture, states that costs are a part of a company’s DNA. Therefore, one’s ability to control costs has a direct impact on the project’s success rate. Without proper cost estimation, planning, and tracking, you have no control over how the project will get completed and whether it will be profitable.
Cost control starts at the planning stages and is essential until the project is handed over to the client. Here are a few examples of how cost engineering is done within project management:
Cost estimation — This process refers to making projections about all possible costs related to a project, including labor, equipment, supply, and time. You can arrive at an educated guess about project costs by using historical data, referencing experts and/or consultants, or utilizing a resource management and resource allocation software.
Cost tracking and management —- Once a cost budget has been created, the cost engineer or project manager now has to monitor it to ensure any changes in project requirements or scope are reflected in the budget. This part of the process allows managers to quickly identify and rectify any areas where the numbers are inching up.
Forecasting project costs and outcomes —- Controlling costs is essential for future projects as well. Forecasting costs allows project managers and stakeholders to manage their expectations and understand the scope of the project.
We highlight the advantages of cost engineering in project management.
As mentioned above, a component of cost management is forecasting outcomes. When a project manager or cost engineer has accounted for and buffered in time and costs for changes to project variables, they are increasing their chances of on-time delivery. By forecasting accurately, managers are better positioned to deal with these diversions and ensure the project and costs are still on track.
A part of cost engineering is assessing risks and accounting for unexpected expenses throughout the project cycle. It is a proactive approach that helps minimize risks as the analysis is done not only at the beginning but throughout the project timeline. A good cost management strategy has a certain risk allowance that allows the project to stay on course and uncompromised even when unexpected factors arise.
The process of cost control requires inputs from various members — project managers, engineers, product specialists, procurement, and HR. The calculation and analysis provided by all these stakeholders will give vital insight into how the project is faring; they will also get data points against which they can make quick decisions.
Resources are the most expensive cost of any project and company. Therefore, cost control and resource allocation tools are interdependent. A resource allocation tools can actually help you manage project costs. We explain how a resource allocation tools will keep your costs and projects in check and profitable.
Picture this scenario: a manager assigns a senior resource with a high cost per hour to complete a low-level task for a client. This may seem like a small error. However, in the long run, this practice of not assigning the correct resource to the right job will end up significantly increasing the costs.
Another frequently committed error is over-scheduling of resources. When the same resources are stretched over multiple projects, it often leads to delays and unexpected costs. For instance, midway through a project, the company may succumb to hiring external, more expensive resources to keep the deadline on track.
Resource allocation tools, like eResourceScheduler, will help you estimate project resource costs, assign tasks to the right person, forecast pipeline project costs, and monitor budget through the lifecycle.
The resource allocation tools will also help you understand employees’ skills, work preferences, utilization, productivity, and capacity. Through these parameters, you will be able to avoid overbooking resources and assignment of incorrect tasks. You will also be able to reduce overtime expenditures and build contingency plans for upcoming projects.
With resource allocation tools in place, your cost estimation process will lead to more optimized and accurate budgets because you know all the resources’ billing rates, availability, and their capacity to take on work.
Cost management is crucial to your business’s success. Yes, the process does sound challenging, however if you have the right technology by your side, cost management becomes a breeze.
If you are seeking a resource management software that can help you improve your cost control, take a look at eRS. eRS is an end-to-end, all inclusive, cloud-based resource planning tool that includes cost management features.
With eRS, you, as a project manager, will be able to:
Want to see how eRS works and if it’s a right fit for you? Take advantage of our 14-day free trial. You will gain first-hand experience and understand exactly how the program can help you control costs, manage resources, and help your business grow.
