Managing and controlling costs is a crucial task for successfully delivering a project. If your ensure that your expenses are within the budgeted amount (or within an acceptable variance margin), possibilities are that you are on the right track of the project execution. If, however, you are facing problems related to keeping your costs within reasonable boundaries, you should consider revising your estimations and work processes in order to implement corrective measures.
Costs, however, are not the sole dimension you should focus on when trying to ensure the success of your project. You must consider how costs relate to other key indicators of your project’s performance. A delayed schedule, for example, will normally result in higher costs: salaries will have to be paid, energy and material costs will increase, etc. Working overtime to keep your schedule on track also leads to higher salary costs (either by hiring more people or by paying overtime to your current employees). A final example is related to the quality of your project’s output. Lower quality output will normally increase the number of complaints and the amount of rework needed to fix product flaws, ultimately resulting in higher costs for your project.
As it can be seen, the project costs are highly connected to other project areas: project schedule, quality assurance, among others. Despite this high interconnection, we decided to split the content into three different articles to better cover each aspect in more details. First, we will discuss several techniques that you can use to control, monitor and adjust the budget of your project. Then, the second article will discuss how to control your schedule and how to integrate both cost and schedule monitoring. Finally, the third article will present several tools to monitor and control the quality of your project, minimize errors and wasted resources, and ensure that your output is well aligned with your customer expectations. By the end of this series of articles, you will know more than what 95% of project managers know about cost, schedule, and quality control!
1. Doing the groundwork: Collecting important information related to cost control and monitoring
Cost control is the task of comparing the consumption of the project budget with the actual work being accomplished for such expenditures. In order to perform it successfully, you will want to have a few crucial documents both from the planning and from the execution phases.
1.1 Cost baseline
The first document you need to have is a detailed overview of all cost estimates for each task in your project. This is done at the project planning phase, and is known as the cost baseline. This is one of the most important types of data because it gives you the standards against which you will compare your actual performance.
1.2 Work Performance Information
Having the estimated project costs is just one side of the coin. The other is composed by the data about the actual costs for each of the tasks already implemented or under implementation. This is provided by the work performance data, the primary data source for cost control. Without accurate information about the performance of your team, it becomes exceedingly hard to properly monitor and adjust cost expectations.
Nonetheless, many project managers implement this step poorly. This happens mostly because collecting this type of information is a somewhat complex task: it requires defining objective measures of performance, as well as a consistent process of collecting relevant data on a regular basis, and it relies, very often, on inputs from team members (which might be biased if their performance was not so great).
Despite all these challenges, work performance information is the basis for every single aspect of project monitoring and control, so it’s highly advisable to spend some time here and create solid processes that will deliver reliable information over the entire course of your project.
1.3 Cost management plan
Once you have the estimated and the actual amount of resources consumed, you must now have access to the defined plan to manage costs. How are cost revision activities implemented? Is there any formal chain of approval that must be followed? Who should be informed about the changes in the project budget? If you need to implement cost-related corrective measures, the cost management plan describes in details which procedures should be followed when updating your cost estimates and performance baselines.
2. Defining our example: House&Co construction process
Now that we have covered most of the inputs and why they are important, let’s move to the more practical part of controlling and monitoring your project costs: the tools and techniques you can use. To help us understand all the different aspects of analyzing cost performance, we will start by presenting an elaborate example that will also help us with the schedule control and monitoring processes.
Home&Co is a company which specializes in designing and building luxury houses. Their process involves three major stages:
- Customer debriefing and house concept: in this first stage, the company closely interacts with the customer to understand their needs and desires regarding the new construction. With this information, the project team creates a house concept that is discussed with the customer and updated based on their input.
- Blueprint design: once the house concept is ready, the company starts the design of the house blueprint, as well as the parallel necessary procedures such as requirements definition and engineering calculations.
- House construction: the construction of the house is the final major step in the process of Home&Co. A unique characteristic of this company is that they don’t outsource the construction phase. This gives them total control over the construction process, schedule, and costs.
Each of these three major stages can be broken down into several subtasks, giving a more detailed overview of the construction process of Home&Co. For the sake of simplicity, we will not be as detailed as we’d be in a real-life situation, but we will keep enough details so every concept of cost control can be explored in depth.
The standard WBS of Home&Co is as follows:
- Customer debriefing and house concept
- Meet with the client to collect concept requirements
- Brainstorm with project team about house concepts
- Summarize brainstorm information
- Develop the house concept
- Sketch the exterior design
- Meet with the client to present the house concept
- Update the house concept based on the customer feedback
- Blueprint design
- Create a prototype of the room distribution in the house
- Refine the prototype to include engineering and architecture concerns
- Calculate the construction requirements, cost, and schedule
- Discuss the prototype, the costs and the schedule with customer
- Update the prototype based on the customer feedback
- Develop the final blueprint based on the updated prototype
- House construction
- Prepare the terrain for the construction
- Build the house foundation
- Build the internal structure and house walls
- Incorporate hydraulic elements
- Incorporate electric elements
- Build the house roof
- Build the interior details of the house
- Paint the house exterior
2.1 Project data: Task cost estimations
Since we are focusing on cost control and monitoring, we will present only the budgeted cost for each task. The table below shows the planned costs (for the purpose of this article, we treat planned and budgeted costs as synonyms) that were presented at the beginning of the project. For the sake of simplicity, we already included the data that would be obtained only at task 2.3. Also thinking about simplicity, our estimates are entirely fictional and focus on providing “beautiful data” for facilitating calculations and chart construction.
|#||Task Description||Budgeted Cost|
|1||Customer debriefing and house concept|
|1.1||Meet with the client to collect concept requirements||50|
|1.2||Brainstorm with project team about house concepts||100|
|1.3||Summarize brainstorm information||50|
|1.4||Develop the house concept||200|
|1.5||Sketch the exterior design||150|
|1.6||Meet with the client to present the house concept||50|
|1.7||Update the house concept based on the customer feedback||50|
|2.1||Create a prototype of the room distribution in the house||200|
|2.2||Refine the prototype to include engineering and architecture concerns||150|
|2.3||Calculate the construction requirements, cost, and schedule||150|
|2.4||Discuss the prototype, the costs and the schedule with customer||50|
|2.5||Update the prototype based on the customer feedback||100|
|2.6||Develop the final blueprint based on the updated prototype||200|
|3.1||Prepare the terrain for the construction||100|
|3.2||Build the house foundation||1500|
|3.3||Build the internal structure and house walls||900|
|3.4||Incorporate hydraulic elements||600|
|3.5||Incorporate electric elements||600|
|3.6||Build the house roof||800|
|3.7||Paint the house exterior||500|
|3.8||Build the interior details of the house||1200|
Table 01: House&Co budgeted cost for each WBS task.
3. Cost control and monitoring: Critical steps, tools and techniques
Now that we have defined the numbers and structure of our example, we can start analyzing the different methods to implement the control of our budget. This can be done in many ways, from a simple “planned vs. actual” comparison to a more complex Earned Value Management analysis. In this article we will discuss several techniques that are widely used by project managers and that are not only applicable to cost monitoring but also, given a few adaptations, to schedule monitoring. Don’t get me wrong: just because they are widely used, it doesn’t mean that they are good. It’s easier to conduct a “planned vs. actual” analysis (and that’s why many project managers use it), but the amount of information it can convey is very limited, and it is practically useless for tracking with precision the overall performance of the project. This is why we present, in addition to the techniques themselves, a summary of pros and cons of each one.
As a start to our discussion, let’s cover several steps that are crucial for each and every technique:
- Understand the causes of variance. Some variance will always exist. It’s simply not possible to estimate a cost baseline 100% accurate, so when you observe variances in expenditures, focus on working to identify why they appeared and how you should approach them. Is the variance beneficial to your project? If yes, implement measures to incorporate its causes into your work routine. If not, work with your team to identify and implement countermeasures.
- Inform stakeholders about changes and updates to the cost baseline: Once you decide to implement changes to the project tasks and measures to counteract budget overruns, good communication practices encourage you to inform your stakeholders about the new scenario and its effects on the project.
- Act to bring cost overruns under control: Cost control and monitoring are essential to help you identify early the causes of cost overruns. The next step is to plan actionable steps to bring costs under control and put your project back on track.
3.1 Planned vs. actual cost comparison
The planned vs. actual analysis simply takes the data from your project management plan and compares it with the actual data collected during the execution of the project. Let’s suppose we collected cost data about each of the first 5 tasks of our WBS and we came up with the following table.
|#||Task||Budgeted Cost||Actual Cost|
|1.1||Meet with the client to collect concept requirements||50||100|
|1.2||Brainstorm with project team about house concepts||100||80|
|1.3||Summarize brainstorm information||50||80|
|1.4||Develop the house concept||200||260|
|1.5||Sketch the exterior design||150||100|
Table 02: Budgeted and actual costs for tasks 1.1 until 1.5.
With that, we can build a simple chart to illustrate how the execution of each task performed in terms of cost expectations. As we can see in Chart 01, some of the tasks were performed over the budgeted funds, while others were under budget. In addition to that, if we look at the cost aggregate, we conclude that, overall, we are above the estimated budget. Looking at the chart at this current stage gives us an important clue about which tasks were more costly (for example, the client meeting costed twice as much as the estimated amount), and which ones are below the budget.
Nonetheless, the number of insights we can draw from this chart is fairly limited. Here are several conclusions that we can reach when looking at “planned vs. actual” data:
- What is the cause behind such increase in the client meeting task? Was it due to unforeseen events or due to poor estimations at the project planning phase?
- The chart also shows that some tasks, such as the brainstorm and the sketching, were performed under budget. We have generally a positive impression towards under-budget performance, but we should always ask ourselves what is the reason behind such behavior. Looking for the reason behind discrepancies (both good and bad) between planned and actual cost and schedule data is one of the most important principles behind the concept of continuous improvement, and you definitely want to have this mindset in your project team.
- The chart doesn’t show that, despite being under budget in some tasks, the overall execution of the project is still over budget.
- This type of chart fails to show the actual time needed to complete each task.
The third point mentioned above can be solved by constructing a table comparing the cumulative planned and actual costs for the project.
|#||Task||Cumulative Budgeted Cost||Cumulative Actual Cost||Cost Spread|
|1.1||Meet with the client to collect concept requirements||50||100||50|
|1.2||Brainstorm with project team about house concepts||150||180||30|
|1.3||Summarize brainstorm information||200||260||60|
|1.4||Develop the house concept||400||520||120|
|1.5||Sketch the exterior design||550||620||70|
Table 03: Cumulative budgeted and actual costs for tasks 1.1 - 1.5.
As it can be seen, the cost spread is always positive, meaning that the cumulative actual cost is always above the cumulative budgeted cost. It might be too early in the project to have some real cause for this difference (it can be simply due to the normal variance found in every real-world project), but you should keep an eye on the posterior progress and performance of your project team.
3.1.1 Advantages and disadvantages of planned vs. actual cost comparison
Despite simple, a planned vs actual analysis offers several benefits that can be valuable when combined with the other techniques presented in this article:
- Is quick to implement and requires very few calculations.
- Gives an overview of both individual task costs and total project costs.
- Intuitively shows which tasks are considerably above budget and which ones are within acceptable variance levels.
On the other side, there are two important drawbacks to the technique that require you to use other tools to support the analysis of planned vs actual performance:
- Presents limited insight into the actual work performance, since higher costs are not a synonym of higher performance.
- It doesn’t offer tangible tools to recalculate the cost estimations of future work.
Project managers can use planned vs actual comparison to control costs and schedule in certain project phases or to carry specific comparisons, but this tool should definitely not be the first option for controlling the entire project performance. Let’s move on and analyze another tool, forecasting, that can be useful when controlling and monitoring costs.
Forecasting is the technique of studying actual work performance data to identify work patterns that allow you to forecast a more precise estimate than the initial budget of the project. Two concepts can help us with that:
- Budget at Completion (BAC): The budget at completion stands for the total budgeted costs of the project. This is the first cost figure we have, and it comes from the project planning phase. The budget at completion is often biased and inaccurate because it doesn’t incorporate actual data from the project execution (even by incorporating data from previous similar projects, it’s not possible to forecast how each specific project will run and which drawbacks it will face).
- Estimate At Completion (EAC): The estimate at completion is the new, updated, estimated total cost for when the project is completed. This is produced by calculating forecasts based on the data collected during the execution of the project. The more the project progresses, the better the forecasts become (for two reasons: (1) there is more data to incorporate to the forecasts, and (2) there is less uncertainty and fewer tasks yet to be executed). The Estimate at Completion has two components:
- The actual costs already incurred up to the date when the new estimates are calculated;
- A revised estimate to complete (ETC) the remaining work. The idea behind the estimate to complete is to use actual project data to update the cost estimates of tasks that still need to be completed. Adding all the updated task budgets leads to the total estimate to complete your project.
The simplest forecasting technique is to calculate a Cost Performance Index (CPI) based on how much above or under budget our cumulative actual costs are. The cost performance index is obtained by simply dividing the cumulative budgeted costs by the cumulative actual costs. Let’s revisit our example. As we can see, the cumulative actual costs (620) are above the initially budgeted amount (550). With that, we calculate the CPI as follows:
CPI = cumulative budgeted costs/cumulative actual costs = 550/620 ≈ 0.887
The CPI can be interpreted as follows:
- CPI = 1: means that the actual costs are equal to the budgeted costs. While this scenario is desirable (meaning that your initial estimates were very precise for the project), this rarely happens.
- CPI > 1: a CPI greater than 1 means that the actual cost is lower than the budgeted costs. Most project managers would like to see a number like this, but again, this rarely happens in real-world projects.
- CPI < 1: this is the most common scenario and it means that our actual costs are higher than the planned budget. Corrective measures should be implemented to either bring the costs down or increase funding based on a new cost estimate.
The CPI gives us an index to adjust our remaining project costs. The process involves three steps and is fairly straightforward:
- Deduct all budgeted past costs from the total budgeted cost: 8600 − 550=8050. This is the total cost estimate of all your remaining project activities, if they were all completed following the original budget estimates. However, since there is already some variance in the cost, you should adjust such value according to the cost performance index of the already completed tasks.
- Adjust the remaining cost based on the CPI: 8050 / 0.887 = 9075.54. This means that, if you keep your project execution at the same performance index, you will actually need $ 9,075.54 to complete the project. This is the ETC, or estimate to complete.
- Your total project cost is then given by the sum of the cumulative actual costs and the ETC. Total costs = 620 + 9075.54 = 9695.54. This number, $ 9,695.54, is your EAC, or your estimate at completion.
3.2.1 An important flaw of the CPI forecasting method and how to fix it and build better cost forecasts
This forecasting method is very common, but it has an important flaw that we cannot ignore. If you use the forecasting technique as it is, you are calculating an aggregate cumulative CPI. In other words, we are calculating the CPI only after task 1.5 is completed. But what if we had calculated it at other stages? Have a look at the table below, which was built by calculating the CPI and the respective EAC at tasks 1.1, 1.2, 1.3, 1.4, and 1.5.
|Task||Cumulative Budgeted Cost||Cumulative Actual Cost||CPI||EAC|
Table 04: Individual CPIs and EACs for tasks 1.1 - 1.5.
As you can see, the forecasts are very different if taken at different points in time. When there is little data, your forecasts are likely to be highly volatile, since they depend only on the actual data collected from one single task. When, however, you have more real-world data, you can produce slightly better estimates.
One way to counteract the volatility of forecasts is to break down your tasks into groups, calculate separate forecasts for each of the groups, and add all the numbers in the end. We could break down the tasks 1.1 to 1.5 into the three following groups:
- Group 1: Client meetings: task 1.1
- Group 2: Brainstorming: tasks 1.2 and 1.3
- Group 3: Creative processes: tasks 1.4 and 1.5
With that in hand, we can calculate the CPIs for each of the groups:
|Group||Cumulative Budgeted Cost||Cumulative Actual Cost||CPI|
Table 05: Group CPIs for task groups 1, 2 and 3.
As it can be seen, the CPI varies drastically from group 1 to groups 2 and 3. You can regroup your WBS according to these three groups and calculate the EAC for each individual set of tasks.
If you look carefully at the WBS, you will notice that some tasks still don’t have a group. Ideally, we would have a fourth group, the Construction processes, which would include tasks related to the actual construction of the house. There are two possible courses of action here:
- Don’t revise the estimates for the tasks that don’t have a group. This is not the best option, and the reason is fairly simple: it’s naïve to expect your construction team to perform according to the budgeted costs. If your project is already over budget, it’s safer to adjust all your future costs according to some CPI.
- Use the overall CPI to revise the estimates of the tasks that have no group. This is the best course of action. Since you don’t have any actual data on construction processes, use the data you have to calculate the CPI and use it to adjust the estimates of the construction tasks. Once you start collecting construction data, you will have more information to better adjust your estimates.
3.2.2 Advantages and disadvantages of forecasting
Forecasting offers more complete data about the performance of your project in terms of costs. It has some key advantages that make it an important tool to be used in cost control and monitoring:
- It provides objective data about your work performance.
- It allows for analyzing different scenarios and incorporating important information when updating the cost estimates for each task.
- It offers valuable information when analyzing business decisions.
Even though it offers more value than a simple planned vs actual analysis, forecasting methods still have disadvantages that should be kept in mind when analyzing the numbers obtained through the technique:
- Cost forecasting doesn’t consider schedule performance. Remember that project performance is tied to both cost and time, and adjusting only the costs doesn’t mean that your project will be delivered within the budgeted schedule.
- It’s not possible to predict the future. When conducting forecasts, we are assuming that the past will repeat itself until the conclusion of the project. This, however, is never the case: new and unforeseen events will always happen during the execution of tasks.
- Forecasts are highly dependent on past data. If your data is not accurate, your forecasts will not be accurate.
3.3 Performance reviews and trend analysis
Performance review and trend analysis are management tools to directly compare cost performance over time. They are based on comparing the budgeted and the estimated numbers (just like in the Planned vs. Actual analysis) both in terms of magnitude and trend.
Consider, for example, the analysis of the CPI done in Table 04. As it can be seen, the CPI has a clear upwards trend (depicted in Chart 02), showing that our team is getting more productive (in terms of costs) as the project evolves. This can be due to several factors: progress on the experience curve, better team synergy, more specific customer requirements, among others.
Chart 02: CPI Trend Analysis
Reviewing the performance of your team members, as well as your overall productivity, is essential to understand whether your team management techniques are producing the expected results on team motivation and development.
3.4 To-Complete Performance Index
While the forecasting cost control method updates the estimate at completion (EAC) based on the actual cost productivity of the work performance, the to-complete performance index (TCPI) tries to answer the question from the inverse perspective.
In other words, for a target estimate at completion (EAC) and a given budget at completion (BAC), we want to know which Cost Performance Index should the team present in order to hit the target. Going back to our example, imagine that the executive board doesn’t grant us the necessary budget of $ 9,695.54 (based on our revised EAC) to complete the project. Instead, they establish that we should deliver the project within the budget of $ 9,000.00. This, therefore, is our new estimate at completion. We know that, if we keep working at the same productivity rate, achieving this target will not be possible. Therefore, we need to revise our required CPI and change our work processes accordingly.
Calculating the new CPI is simpler than you might imagine, and it requires solving the same equation as above, but now for the CPI variable. Remember:
BAC/CPI = EAC ⇒ 8600/CPI = 9000 ⇒ CPI = 0.9556
This means that, for each of the tasks of the project, we can have a 4.44% increase in the cost to complete them. While this might sound good (we have a $ 400.00 extra budget and we can perform a little under the budgeted performance index), in reality, there is very little room for error. When looking at our CPI table broken down by groups (table 05), we see that only the third group, the creative processes, is above the new required CPI.
This is where changes in the work processes come into place. Now it’s not a matter of cost controlling or monitoring. Instead, it’s a matter of creating or redesigning processes, increasing team motivation, and other management techniques to work on team productivity in order to achieve the required CPI.
3.4.1 Advantages and disadvantages of using To-Complete Performance Index
Advantages of calculating the to-complete performance index include:
- It provides an objective goal to adjust the productivity of your team and redesign your processes.
- Is a good method to estimate effort for when the estimate at complete is determined by stakeholders external to your project team and there is very little room for variation in the total budget of the project.
The method, however, should be used with caution due to its several limitations:
- When other stakeholders are determining the budget, they are not as aware as the project team about the details necessary to accomplish each task. This might lead to unreasonably tight budget requirements and, consequently, to very high performance demands.
- Having a target number for performance is not enough: your role as the project manager requires you to think carefully about which processes can be optimized so performance can be increased. This takes time, and the process of optimizing processes can be costly itself. Therefore, you must also consider these parallel aspects when interpreting the to-complete performance index.
3.5 Earned Value Management
Last but not least, we will discuss how to use the Earned Value Management technique to control and monitor project costs.
While each of the five techniques analyzed here provides insight into different dimensions of the cost control process, the EVM method is considered to be the most efficient in providing reliable information about performance.
There are three main concepts related to EVM:
- Planned value: planned value (PV) refers to the amount of the budget that is allocated to a specific task of the WBS. In other words, you expect to complete the task (meaning, to realize 100% of its value) within the budgeted cost for that task. When you add the planned value of all tasks in the WBS, the final figure is the budget at completion (BAC).
- Earned value: the earned value (EV) refers to how much of the planned value was performed when it comes to a specific task of the WBS. The EV cannot be greater than the PV; in the best-case scenario, your EV is equal to the PV. The EV is measured by measuring the work in progress of a task in the WBS.
- Actual cost: the actual cost refers to the actual expenditures recorded during the execution of a task of the WBS.
The idea behind the EVM is to assign the value of a WBS task (the budget) and then measure, simultaneously, the progress and the costs of achieving such progress. From our example: task 1.4, developing the house concept, has a planned value of 200, meaning that this is the value of this specific task in the WBS. Suppose that the project team expects to execute this task linearly over five days (read more about how to integrate cost and schedule in this article), meaning that each day should lead to an increase of 20% in earned value and an actual cost of 40.
As our team executes some work, expenses and performance are recorded. Say that, at the end of the third day, we identify that we have already spent 150 and only 50% of the house concept has been achieved (how to exactly measure this type of activity falls out of the scope of this article). This means that we are both over budget and behind schedule. Have a look at the chart below, which clearly shows how the lower productivity can be decomposed into two components: AC > PV and EV < PV.
When applying the earned value management technique, the two most important indicators that you want to focus on are the cost variance and the cost performance index.
- The cost variance is simply the difference between the value you realized and the costs necessary to realize such value (in other words, it compares the earned value and the actual costs of a task). It’s given by the formula CV = EV - AC. If, for example, you are able to complete the task at a lower actual cost than the budgeted amount, your cost variance will be positive; if, however, you incur higher actual costs, your cost variance will be negative.
- The cost performance index measures the efficiency of the costs incurred in completing the work. We could have made huge investments and complete the work at a very high cost, but this would be extremely inefficient. The CPI is responsible for showing us that. The formula for calculating the cost performance index is CPI = EV/AC. As we can see, it calculates the earned value as a share of the actual costs: if the EV is much smaller than the AC, something is not right, our work is not efficient, and the costs we are incurring are not bringing any real results.
Focusing on the budget for now, we can use the information on PV, EV, and AC to calculate both the cost variance and the cost performance index.
The first one is given by:
CV = EV - AC ⇒ CV = 100 - 150 = -50
This means that we are 50 monetary units behind the planned value and budget for the project. This is a crucial information because it tells us that more resources are being spent in producing less work than expected. The cost variance is also relevant because it tells us how value relates to actual cost.
The second measure, the cost performance index, is given by:
CPI = EV/AC ⇒ CPI = 100/150 = 0.667, or 66.67%
What this number is showing is that we incurring more costs than the initially estimated for the task. In other words, we have accomplished less than we wanted at a higher cost, meaning that our project execution is considerably inefficient.
As the project manager, you should use this information to conduct a detailed investigation of the causes behind such discrepancy. This investigation, together with your personal recommendation to improve performance, form the essence of the next section.
3.5.1 Advantages and disadvantages of the Earned Value Management technique
Like all the methods and techniques already discussed, the Earned Value Management technique also presents advantages and disadvantages.
It’s main advantages include:
- Different indicators that not only compare actual and planned costs but also provide efficiency and performance metrics.
- Estimations of the value of a task, providing both an objective measure against which benchmark performance and a subjective understanding of how much that specific task is worth in terms of costs to the project.
Some of the disadvantages include:
- Estimating the value of a task can be complex if the task does not have clear implications in the final value of the project output.
- Can be exceedingly complex for small projects.
- If the actual costs of the task are not accurate, all the indicators calculated through the earned value management technique will be biased.
4. Outputs of the cost control and monitoring analysis
Controlling and monitoring costs should result in meaningful insight on how to increase work performance. The following four elements are essential to successfully proposing and implementing changes to your project processes.
4.1 Work Performance Measurements
The many indicators we have mentioned throughout this article compose the work performance measurements output of controlling costs. Combining the cost variance and the cost performance index and analyzing the causes behind the variations in these indicators will help you find concrete suggestions to improve your processes.
4.2 Budget Forecasts
The budget forecasts, more specifically the estimate at completion, are crucial information that should be communicated to every relevant stakeholder as soon as the calculations are reviewed and approved by the project team.
4.3 Organizational Process Assets Updates
As already discussed, the main goal of controlling and monitoring costs is to find points of improvement for the project execution. This analysis will lead to suggestions of how to change organizational processes to improve efficiency, reduce losses, and increase performance. The updates will normally target the causes behind the variance in costs, and they will focus on implementing corrective measures to put your project back on track.
4.4 Change Requests
Last but not least, the improvement suggestions made by the project manager and the project team will lead to concrete change requests that must undergo the already defined process for formal approval and implementation.
5. Final words
Cost controlling and monitoring is essential for any project that targets a successful execution. It’s a too great risk to implement a project without constantly revisiting its financial aspects. As the project grows, unforeseen costs start to arise and change the initial estimations for each task of the WBS. The constant monitoring of costs, as well as the calculation of several performance indicators, is essential to the successful incorporation of this new information into the original project plan.
This article focused on discussing specifically the cost dimension of project performance, but a second, equally important, dimension was temporarily left out: the schedule of the project. In the schedule control and monitoring article, we will provide a detailed guide to not only calculating schedule performance but also to integration both cost and schedule measurements to obtain an even more complete overview of the project progress. Make sure to check it out!