Project Cost Management Requires Flexibility

[NOTE: Want to find out more about project cost management?  You're invited to the launch of PPC Group's new publication, Project Cost Management: Principles, Tools, Techniques, and Best Practices for Project Finance, by Ray Frohnhoefer and Inham Hassen, in June 2022. For more information and to register for the event, click here: https://www.accidentalpm.online/PCM_Virtual_Launch_Registration.]

The area of cost management requires more flexibility than other project management knowledge areas to conform to organizational norms.  In many organizations, cost management standards and practices are more influenced by existing norms, perhaps more than other project management knowledge areas.  These circumstances, often created to support the Finance Department and their responsibilities to senior executives, lead to many variations in practice when it comes to:

• Budget roles and responsibilities – The exact role project managers play in creating budgets will vary.
• What is included in budgets – Some organizations include the reserves, others do not; some will require tracking of indirect expenses, others will not.
• How budgets are formatted – Almost every organization has its unique budgeting format designed for senior management and the Finance Department.
• Procurement practices vary greatly – The variations often affect cost management practices.
• Accuracy and precision of budgets – Rules here vary considerably – one organization we know requires rounding to the nearest nickel, while most encourage whole numbers.
• How to control costs and who controls them – Control mechanisms and those with responsibility will vary.

It is incumbent on the project manager to consult with their management, Project Management Office (PMO), senior management, and finance professionals to learn all the rules and follow them.  Citing standards and best practices will usually not help in creating change.

Another common cost problem project managers face is the budgeting for human resources.  There may be work that needs to be done, but the Human Resources department will not provide you with anyone's salary.  Some material costs may also be challenging to estimate.

Your organization's cost accountant can become your new best friend in these circumstances.  Their job is to study costs, and they can often answer questions that others will not.  For example, they may not tell you the exact salary of that programmer or electrician your project needs.  Still, they can tell you what they are paid on average.  When you complete your budget, they will also be one of the best experts to review it.