5 Tips for Managing Project Costs

Wednesday, December 18, 2013

Here are 5 tips for project cost management.
#1: Negotiate
Most projects involve suppliers or other third parties, and you might be surprised at how much negotiating power you have, especially if you are buying goods or services in bulk. If you are the first company to use a product from a supplier you could get a good discount by agreeing to provide references or a case study.

Look at the pricing structures as well. You may be able to negotiate a different payment structure such as phased payments instead of paying for everything upfront. This can help your company's cash flow. You may be able to get a discount if you can pay cash on delivery too.
#2: Use expense management software
You can't manage project costs unless you've got a great system for keeping on top of what is being spent when. These expense tracking tools help you keep track of where the money is going. The software can also manage recurring expenses so you'll never need to remember to enter regular payments.

In some companies managers will also expect you to track the cost of resources, so make sure that your expense management system can handle automatic calculations of resource time based on the hours worked and their hourly or daily rate.
#3: Review your contracts
Are you paying for value-added services that you don't need, such as insurance or project management that you are actually doing yourself? Many vendor contracts include an admin overhead that you could do without. Think about renegotiating your contracts or purchasing services on a ‘pay as you go' model instead of a full-service contract basis.

#4: Get the right resources
A huge amount of your project budget can be spent on people, so it will literally pay to get the right resources. For example, don't ask a highly paid, skilled resource to do general admin work when you can get a temporary resource at a much lower rate to do that. And use specialist resources when you need to—they will often complete work much faster than a generalist and so work out cheaper, even if their day rate is a bit higher in the short term.

Don't be afraid to use temporary resources. You can integrate them into the project team and then manage their departure when they leave. This might sound like a lot of work but it's more efficient for everyone.
#5: Extend the project
When faced with mounting costs, you might find that your project client or sponsor is prepared to extend the deadline for the project, even if they previously said that the milestones had to be fixed! It may be cheaper to deliver your project over a longer period of time as you can spread out costs or do more work in-house. Talk to your sponsor to see if there is any flexibility in the timescales.

Remember, if you complete your project on or below budget but you don't deliver something that meets the objectives of the stakeholders, then the project hasn't been a complete success. Ideally, clients will get what they want for a reasonable price. It's a difficult balance, but there's no point cutting costs if the end result isn't useful and doesn't meet the customer's needs. There's nearly always some cost cutting that you can do, but don't let it be at the expense of project success!


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