There’s nothing worse than going over budget or going into debt while working on a project. To prevent this from occurring businesses develop cost management, companies can employ the cost management structure to single projects or their business as a whole.
Cost management is the process of planning and controlling a business’s budget. It starts from the initial planning phase and covers the full project cycle. After applying cost management, all costs will be calculated, recorded and monitored. This allows a business to predict future expenditures in order to reduce their chances of going over budget. Once the project is completed, predicted and actual costs will be compared in order to help calculate future budgets.
To help you develop a stronger understanding of the topic, take a look at the following 4 steps of project cost management which are outlined in the PMBOK:
1. Planning Cost Management
The initial phase of cost management involves defining the resources required for the completion of all project activities. A good way to get this started is by creating Work Breakdown Structures (WBS) or listing previous information and comparable projects that will help you discover which resources will be needed. Make sure you also take into account other resources like labour and required time for task completion. Once you know all the necessary resources and their quantitates, you’ll be able to easily calculate their cost.
2. Estimating Cost
The biggest component of cost management involves predicting how much it will cost you to complete the project. The cost estimating method that you choose to use will depend on the amount of information you have available about the project and project tasks. Naturally, estimates can be altered as more information becomes available. Over time you will have a cost estimate with a very high accuracy. However, until then you should seek assistance from a strong project management software, such as ITM Platform. Project management tools like ITM Platformoffer cost management which will help your business monitor costs, decrease uncertainty and increase profitability.
3. Determining your Budget
Cost estimates will help define the expenditures involved with specific project activities and the overall cost of the project. Whereas the budget allocates project costs over a longer period of time to create a cost baseline which should be the starting point for your current and future projects. Essentially it will provide you with a good idea as to how much money you have to spend on the project.
4. Controlling Cost
Cost control involves measuring any inconsistencies that arise and are different from the set cost baseline. Once you discover them, you will need to take corrective actions to avoid cost overruns. Anything that strays away from the cost baseline needs to be recorded and the forecasted total cost should be altered to include these changes.
Use a cost control tool like the one provided by ITM Platform to help define cost and track, apply and approve all changes. Furthermore, cost accuracy and consistency are more likely to maintain when you have a strong software and great staff guiding you.
Imagine the process of assembling a car, certain steps need to be completed before the car can move onto the next phase. The waterfall methodology is very much the same because it follows a sequential process. Each of the eight steps (conception, initiation, analysis, design, construction, testing, implementation and maintenance) will need to be completed chronologically. Extensive planning needs to be done before the project begins because there is no room for error.
What is the Agile methodology?
The Agile movement was first introduced in 1970 by Dr. Winston Royce who sought out an alternative to the traditional project management approach. Royce didn’t believe that project development should follow an assembly line routine. He thought project management teams could respond better to uncertainty if they first created a project design and then followed incremental work cadences also known as sprints. This allowed each aspect of the project to be reviewed and bugs to be discovered.
How to put the two together
While the two appear to be polar opposites they can very well co-exist in a single environment. The first thing that needs to be done is make sure all project managers, task performers and stakeholders understand their differences and appreciate what they both have to offer. Trying to find fault or prioritize one or the other is only a set back. Strong and continuous collaboration amongst team members will help to maintain calm even when frustration may arise.
Since waterfall methodologies require project planning to be done up front while agile teams prefer doing it progressively, it will be extremely important that synchronization between the two is maintained. Furthermore putting in place a project management office(PMO) will be beneficial. PMOs help maintain governance across all teams and monitor the overall progress of the project, making sure it follows the organization’s vision.
There’s nothing better to help you with managing the two methodologies than a good set of project management tools. PMOs in particular enjoy depending on tools that will quickly and easily provide them with project metrics and report upcoming deadlines, tasks that need to be completed, etc. This allows them to evaluate how well the methodologies are working and what may need to be done to improve. Take the time to find an efficient project management solution, such as ITM Platform, which is capable of gathering information from both agile and waterfall projects and merging the two into a single platform. This is very important because it will create a central repository for all the project data which will be used by all team members.
The biggest challenge companies face isn’t trying to decide whether they wish to use agile or waterfall methodologies but rather it’s their fear of change that holds them back. Forcing employees to change their ways and adopt a new model of work can be difficult and often disastrous. Luckily, it also isn’t necessary. Once again, adopting a flexible project management solutionwill allow team members to ease into changes and learn to adapt and work with both methodologies. This will allow you to achieve a successful union between the two, increasing productivity across all projects and the entire organization.
When implementing a project portfolio management (PPM) model in an organisation, acquiring a project management software is not enough; usually the organization needs to adapt to the new way of working.
One of the first aspects to keep in mind when adopting a project-oriented management style, is to decide what to merge and what to centralize.
Those are some of the most frequent aspects:
Terminology: To accurately communicate internally in a company (or externally with suppliers or clients), you must be able to convey precise feedbacks such as the state of the projects. Vague or ambiguous descriptions like “going well” do not help, because they don’t indicate the real state of a project and do not provide information that the sender or the receiver can truly understand.
Monitoring criteria: projects should be frequently monitored and quantitively measured. It is important to have everyone’s agreement on which criteria to use when measuring the project’s development.
Resources management: Depending on the nature of the project, centralizing the management of resources can be necessary. This decision will affect the organizational structure, the project manager’s work and the way day-to-day work is planned and executed.
These elements are the key to information and quantification. It is advisable for every department of the company to use a common reporting system to be able to rely on the necessary information to make decisions.
Other elements that should be consolidated are the processes (when a project is approved, when a project changes status, who must take those decisions…), standard costs or document formats to be used.
To sum up, you first have to think about what to centralize and afterward decide on how to do it.
2. Agile, predictive or both methodologies
Another critical decision that needs to be taken before starting a project is to decide which management methodology to apply. Each methodology has its advantages and disadvantages and, depending on the nature of the project, you should select the most appropriate.
Agile methodologies: The agile methodology is very good to manage uncertainties. It is ideal for those projects in which the results are not certain, or when you have an idea about the objective, but you do not clearly know how to reach it. It is frequently the case for IT projects, Start-ups and projects with high levels of uncertainty.
Predictive methodologies: Predictive methodologies are good to manage projects with low levels of uncertainty, for example projects in which processes are well known as well as the expected results. An example could be a project to produce a component that was already produced in the past. In this case, given that the processes are known, the objective is to maximize the productivity.
Both methodologies share some common points: tight monitoring, quantifications and measurements.
To fully take advantage of each methodology you should employ project managers that have expertise in both methodologies and who know how to adapt to one or the other depending on circumstances.
If you decide to use both methodologies, these will need to coexist in the same portfolio. Check out this webinar on how to make the 2 methodologies coexist.
3. Responsibilities of a project manager
It is fundamental to clarify the responsibilities of the project manager before the start of a project. That will empower him to properly do his work, focus on the most important tasks and properly report the results of his work.
Here are some of the most common decisions a project manager has to take:
Monitor the project progress
Canalize and encourage communication
Assign resources
Manage risks
Control Purchases and Revenues of the project
4. The Project Management Office (PMO)
Another relevant aspect is to decide whether a project management office is necessary or not. There are companies with high amounts of projects that do not rely on a project management office, while there are cases of less project intensive companies that actually need one.
This difference is motivated by the specific conditions of each business and by other factors. The most relevant are:
The level of maturity of the organization as well as their specific situation. Some companies are in a stable period with little variations in the business while others are in a phase of transition with high level of uncertainty and variability.
The complexity of the organization.
The nature of the business. For example, there are sectors where projects management offices are common because of the intrinsic nature of the business model.
The existence of interdependencies between projects. When such dependencies exist, the project management office is particularly important as it allows to coordinate the projects to take advantage of the interdependencies.
The degree of maturity of the project’s directors. Experienced project managers sometimes can cover the full scope of the project portfolio, thus becoming a one-man project management office. Unfortunately, this is not common, and it will be often necessary to create a dedicated team to constitute the project management office.
Strategic alignment. A project management office is particularly important when projects are not properly aligned with the overall strategy of the company.
To sum up, a project management office provides a strategic focus and allows the organization to reach levels of coordination that would not be possible otherwise.
5. Methodologies and structures in PPM
Another aspect that should be considered is the methodological framework. The guidelines provided by PMI or Prince2, for example, are very helpful. However, our advice is to adopt these guidelines with common sense and without applying them too rigidly. It is advisable to adopt only the aspects that best match with the organization and its needs.
Some key aspects that should be considered:
Process standardization: processes should to be standardized, be as simple as possible and be close to reality.
Inspiration from existing models: There are international associations that facilitate models of standardized project management. You can take inspiration from them, keeping in mind that it is best to adopt the best of each one.
We have explained how to design the organization to make the change possible, but we are still missing a very important part: How to do the transition? ¿Which method should be chosen to be successful?
Change management
To make a successful transition, the organization should fulfil several requirements and follow a series of steps.
1. Definition of the driving force
The initiative of a transition towards project-based management should come from the company’s top management. Directors should promote the use of project management systems and be the ones to lead the change.
It is important also to have the support of the management of the departments most affected by the change.
2. Implementation of change management
The transition can be done using 2 approaches, that we call the “pincer approach “.
On one hand we have a top down approach, where the use of new systems and methodologies is presented as a duty or obligation.
When adopting this approach, control models and reporting systems are key. They permit to verify that the new project management model is being applied correctly while, at the same time, monitoring the added value for the company.
For example, you can decide to use only the data previously registered in the system during follow up meetings.
On the other hand, you can adopt a bottom-up approach, with training and active listening. Employees know the reality of work circumstances and how to translate those into the new way of working.
Furthermore, team members should be persuaded that the change to their way of working adds value to the entire company, from which they are going to beneficiate in the medium and long-term.
Enthusiast employees motivated to adopt the new methods may greatly influence others. This can be an even more effective implementation strategy than having managers or directors forcing the adoption.
To guarantee the final success, it is necessary to start with relatively easy projects where the results should be quantified and compared with the ones pre-adoption. Make sure to successfully achieve the first steps and you will favour success in the next ones.
To sum up, it is advisable to progressively evolve, with clear and feasible objectives, reaching perfection step by step.
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