cost management companies in india

Guide to manage project costs

Your projects are vital for the future of your organisation. Adequate cost management enables you to optimise your resources (time, staff, equipment and materials), make decisions based on data about projects and their risks, measure financial performance, and provide senior management with key metrics.

What is cost management for the project?

Cost Management is a challenge to effectively predict and manage project costs whether you are developing a new product, designing a facility, or changing a key process.

Cost management refers to the planning and project budget management activities. Efficient cost management ensures the completion of a project in accordance with and in line with its budget. Because you at least partially evaluate the success of a project by its cost performance, cost management is a key determinant of the project outcome.

Cost management activities are carried out during the entire project cycle, from planning and budget allocations to project management and cost evaluation upon completion of the project.

Whilst cost management encompasses a whole set of activities, it is sometimes referred to in more specific areas such as spending administration, cost accounting and cost transparency. These terms are sometimes used by cost managers as loose synonyms for the broad function of cost management.

Four major steps in cost management

The theory of project management, says costs management comprises four processes. The cost management process consists of four different processes.

Resource planning:

As part of the project initiation phase, resource planning uses a work-downstructure to calculate the full costs of the resources required to successfully complete a project. This is a hierarchic representation of all project deliverables and the work required for completing them. Managers usually identify the necessary resources for each component of the work breakdown structure and then create a total resource cost estimate for all project results.

Cost estimation:

Cost estimation is an iterative process using a number of estimation techniques to determine the total project cost. Cost estimation techniques vary widely from conceptual approaches that draw on historical experience and expert assessment to determinative technique which estimates costs on a component-by-component basis. These techniques will be discussed in detail later as their level of precision varies.

However, although the estimator’s task is always to create the most accurate possible estimation, determinative estimation techniques are only an option if the scope and the deliverables of a project have been reasonably finalised. In the earliest phases of project planning, you therefore use the less accurate estimation techniques, and then review and update estimates as the project is defined.

Cost Budgeting:

You can finalise and approve the project budget once you have produced satisfactory estimates. Cost managers typically release the amounts budgeted at the stage depending on the progress of a project. This includes contingencies and reserve appropriations.

Cost Control:

Cost management is the practise of measuring cost performance by cost and schedule, providing comparison points throughout the project life cycle. The project management plan specifies the requirements for efficient cost control. The person responsible for cost management examines the reasons for cost variations – remedial action is provided if they consider cost variations to be unacceptable. Other related responsibilities include controlling costs for example to ensure that project budgets reflect changes in the scope of a project.

Key components of Cost management plan

These four processes are governed by the cost management plan. Costs management plan, which was developed during the project planning phase, is a document defining how the project costs are managed, controlled and communicated to the end of the budget project.

A cost management plan identifies, among other things, the person or group responsible for cost management, details how to evaluate the cost performance of a project, and sets out rules for communication to shareholders of the project’s cost performance. It also sets out the methodologies through which project cost differences are controlled.

Although you can personalise a plan to meet your company’s needs, they usually follow a standard format. Sections often include the cost variance scheme, cost management approach, cost estimate information, cost baseline information, cost and reporting processes, the process of change monitoring, budget for the project, and approvals. You may also want to include the level of expenditure authorities of key project staff, to indicate which roles can cost up to certain thresholds.

Construction cost control services Mumbai

Cost Control Services

SuvarnaConsultancy is the world class project management consultancy catering to the construction sector. The company renders numerous services and cost control is one among them. Here we will have a look at the Cost control in detail along with different aspects related to it.

Cost Control Services

If you want to have a profitable venture in construction projects, then you must know the art of cost control. In case you are not familiar with the cost control concept and not sure how to do it effectively then this article will help you to do cost control like a pro so that you can maximize your revenues. Let’s start with the definition:

What is cost control?

Cost control refers to the ways of collecting the cost record of the project and monitors the work progress to minimize cost in the construction project. This process also involves the comparison of the work progress with the planning. In case any discrepancies or overruns are noticed, the project manager aims to take measures to control the same. This controlling process is also a part of cost control.

Purpose of cost control:

Cost control in the construction management aims in maximizing the profit of construction projects without compromising the quality. The lessons learned from the cost control assignment in a project are used in future projects.

Role of a project manager in controlling cost in the construction projects:

The project manager plays a vital role in controlling and minimizing cost. Let’s find below the roles of a project manager with regards to the handling of cost:

Cost information collection: The project manager needs to collect the exact cost details from all the stakeholders involved

Synchronizing: The project manager is responsible for synchronizing the actual budget against the exact cost. He must leave no stones unturned to compare both. He must take precautionary measures in advance so that the actual cost does not exceed the planned cost.

Monitor project quality: this is an essential role of the construction manager. He must ensure that the best quality is delivered to the customer. Often to reduce the cost, many project managers aim to compromise on the quality. But this must be careful of, and the project manager must ensure that there is no compromise the quality of the project when the cost is minimized.

Monitoring issues and risks: The project manager also should monitor the problems and risk involved in the successful cost control procedure. For instance, some things may increase the cost; he must make sure that those things can be detected well in advance and can be regulated in advance to control the costs.

Corrective actions: The project manager is responsible for taking disciplinary actions when overrun is noticed. The corrective actions can involve replanting or functional modification depending on the1 project involved or as deemed appropriate by the project manager.

Quality audits: the project manager is responsible for making quality audits. The quality needs to be monitored at every step, and this process forms a crucial part of cost control in construction projects. The project manager must analyse all the parameters and do the audits carefully spa that there the best quality can be delivered to the customer at the end of the project. He may do a Plan-Do-Check-Act process. The best quality plan may look good on the papers, but it is of no use if not implemented. He needs to do spot-checking, and in if he notices any quality issues in any spot, then he must dig deeper and find out the cause behind the same and take preventive measures. It is not only essential to generate an audit report, but the project manager is also responsible for determining the action plan so that the quality can be improved.

Paperwork checks: The project manager must do the paperwork checks at every part of the cost management. This is an essential part of cost control. It is necessary to have everything documented so that discussions can be facilitated with the stakeholders and the project owner.

Change monitoring: Changes are common in construction projects. The project manager must do the change management properly for controlling cost. Effective change management is an essential part of cost management. The project manager must coordinate the change control process. For instance, he must check the documentation, drawing, process, flow, schedule etc. for controlling cost. The change request needs to be defined as the initial step. The project manager must then prepare the response document for managing change. He needs to get it approved from the other stakeholders and the project owner. Effective change management is the backbone for cost control, and one is incomplete without the other.

The life cycle of construction management and project cost:

The construction industry is dynamic, and the cost must be controlled from the beginning to see significant results in the end. The life cycle of construction management involves the below steps:

Develop the project plan: The project plan is developed based on the coast forecasting and estimation. After the budgeting and analysis, the cost control plan is prepared, and after the preparation of the cost plan, it needs to be approved by the stakeholders and the project power.

Establishing the benchmark: It is essential to establish the benchmark to know what is intended. Once you know the goal, you can work hard towards achieving the same.

Monitor performance: This is the third and an impoirt6ant step. After the planning and establishing the benchmark process is completed, it is necessary to monitor now and then if everything is going per plan. Every aspect of project management needs to be traced.

Identify deviations: Deviations can refer to cost overruns. After monitoring the performance of the cost control project if the project manager notices any variation in the actual performance against the plan, then he must take corrective actions.

Make adjustments: When deviations are noticed, the project manager may be needed to make adjustments in the performance so that the performance goal can be met.

Reporting and evaluation:

As the final step, the result must be evaluated and documented. Various analytical methods can be used in the evaluation process. Sufficient documentation is crucial for the success of the project. Unfortunately, many project managers fail in this last step, and as a result, the benefits of cost control are not appropriately realised. Everybody remains keen to move on to the next project, and it becomes complicated to get the parties together for a discussion, a project manager you must check that the last step can be carried out carefully.

Features of a successful cost control plan:

Let’s check out some of the other features of a successful cost control plan so that you can use this as a benchmark and know if you are in the right track or not.

Achievable target: An excellent cost-control plan must be based on achievable goals. If the goals are unrealistic, then it won’t be easy to fulfil them and hence may not see significant results. The project manager must set goals that can be achieved easily.

Should have an effective corrective action: An excellent cost6 control project must have an effective corrective action and the corrective action will depend upon the project and the decisions of the project manager.

Finish within deadline: A good construction project must finish within the deadline. Remember if the deadline fails, then it can result in dissatisfaction of the end-users and impact your brand value. Since time is the money, it is crucial to finish the projects within deadline.

Good communication flow: A cooperative project should have a good communication flow. The stakeholders and the parties involved must be informed about the project progress in the entire life cycle. It would help if you did not remain contended by forming an excellent plan, but you should monitor in every step to make sure that the procedure is followed correctly. Also, you must keep all the parties involved informed so that if required, they can suggest for some alternate plan of action. Communication flow must again happen between the employees. A cost control plan will be successful when all the employees involved are aware of the nitti0gritties of the plan so that they can follow the same. When something goes well, you can consider rewarding the employees so that they are always motivated to perform better. It may be a good idea to highlight the critical aspect of the cost control plan in the dashboard to increase visibility.

Constant monitoring: The monitoring should be constant in a good cost control plan. It is also essential to prepare the daily and weekly report. Many project manager s tend to ignore the reporting part, but reporting forms a crucial step in the monitoring process. You can get some data filled by the employees itself. For instance, you may ask the employees to fill in their working time daily. Daily, weekly and monthly monitoring of your cost plan is essential for the success of the project.

Essential facts that cannot be ignored in the cost control process of construction project:

Having a thorough knowledge of the cost: For an effective cost control plan, you must have a good idea about the different types of costs involved in the project. The costs are direct costs, general conditions, labour costs, heavy equipment costs etc.

Understand the bigger picture: it is important to understand the bigger picture before getting into the details of the project. Plans are reviewed in detail before focussing on the nitty-gritty.

Discover the red flag issues: The red flag issues need to be checked in priority. You must check for any adverse conditions, clauses that can affect the cost of your project in the long run.

Discuss questions and clarifications: Discover questions that need clarification, you must have all the answers in advance to avoid last-minute conflicts. An efficient project manager will prepare all the possible questions and answers before he bid meeting.

Site visit: The cost must be calculated to post a proper site visit. Everything should be minutely examined before the cost control plan is curated. Once you walk through the land, you can come to know about the hidden elements that can affect your pricing. You must consider the distance of the project from the commercial locations, the water facility, the site conditions, the commutation facilities etc. You need to check for the labour costs, material cost etc. Having an answer to how many and how much will help you do the project control plan effectively.

Taxes: The taxes part need to be considered well in advance before planning the cost. The ties are sometimes liable to change; you should consider those aspects as well.

The work breakdown structure (WBS) needs to be adequately developed: WBS is an essential part of cost control. The size and complexity of the project determine the WBS structure. The top-down approach or the bottom down approach can be followed for the WBS determination. Top-down refers to the complete project work, whereas the bottom down refers to the collation of the list or tasks required to complete the project.

Reporting part: The reporting part needs to be adequately checked. Several methods of reporting exist; you need to find the best one per your convenience and the suitability of the project. The earned value measure system (EVMS) is an essential method of reporting. The EVMS accurately portrays the project status and helps in the identification of trends. The EVMS defects the issues early so that you can have a significant cost control system. You can use the reporting tools as well for more accuracy. You also need to consider the performance reports, status report, project report and exception reports. The cumulative cost report will help to understand the variance from the estimation.

By lowering the company’s expenses through cost control, you can maximize the profits. Also, when you have success in one project, you will create a good reputation for the company and will increase its chances of getting more projects in the future. Through cost control when you can submit the project time it will impress the end clients and this in this manner, your brand value will be enhanced in future. Cost control will also help to keep your cost transparent to the customers. If through an Abad control system, the overall pri9ces increase of the project, then it may set a wrong impression for the clients who may end up believing that your cost structure is not transparent. Hence the above article will help you to do management effectively to get high returns on investment.

Conclusion

We have seen above the cost control in detail and different aspects related to it. You can take the help of Suvarna Consultancy, in case you feel your construction project is in need of Cost Control Services. The Company is also providing an ERP known as CCIS or Construction Cost Information System that will help you to keep an eye on the project cost and streamline your way to cost control in your project.

Project Cost Management

How do you manage project costs?

Managing the cost of the project effectively is a challenging task and may require a lot of skills. There is no silver bullet for effective cost management in the construction sector. In this article, we will have a look into some of the tips that will help you in efficient cost management in your construction projects.

What is project cost management?

Project cost management refers to the process followed by the project manager to plan and manage the project budget. This may involve the usage of technology to measure cost and productivity. The appropriate estimation, allocation and the control of costs determine the success of projects. Project cost management also involves the cost associated with procuring the projects related to project completion.

Let’s understand this through a simple concept: Your mother is getting older, and you decide that she must move into your house however you may not have ample space in your house, and hence you decide to build up a spare room for her. The first question that will cross your mind is, how much is this project going to cost? Well, this question can be answered through project cost management.

Now that you have a fair understanding of the definition, let’s look into why it is important.

Why is Project cost management important?

Project cost management is important to set a budget. Through project management, the project manager makes sure that the project cost remains within budget.

The project managers compare the original project cost status with the targeted project cost and use it as a baseline to determine the future course of the project plan. He may change or realign the project structures if needed so that he can meet up the cost target.

This comparison helps in determining the success of the project.

A project can be termed as successful if:

• The project follows the scope

• If the project completes within the deadline

• If the project is completed within the budget

• If the project completes within the stipulated time

Types of Project costs:

There are generally five types of the project cost

Fixed cost: The costs that generally remain fixed throughout the project lifecycle are termed as the fixed cost. Examples may include the salary of employees or licence cost.

Variable cost: Variable cost is the costs that vary. An example may include supply cost, labour cost etc.

Direct cost: The costs which are directly related to the project work are called as a direct cost.

Indirect cost: these costs are not associated with the work of your project but may be incurred during the business.

Sunk Cost: Sunk costs refer to the costs that have already been lost and they fail to produce any outcome

Total project cost: Total project cost is the summation of all the costs mentioned above.

Now that you know the basics let’s focus on the main aspect which is how to do cost management Project cost management consists of four important steps. Once you are familiar with the steps, you can do the cost management easily.

Let’s look into the four steps of cost management:

Project resource planning:

Through resource planning, you identify the resources that are required for the project execution. This can refer to people like employees and contractors and equipment like vehicles, tools tec.

Resource planning is done even before the project commences. To begin with, the project manager must know about the work break down structure (WBS). The WBS will have many subtasks. It is the job of the project manager to look into each subtask and check how many people, what skills or what equipment needed etc. to finish the project.

Cost estimation:

Cost estimation is the next important step. Here the project manager calculates the approximate cost, and he tries to quantify everything so that it can help him in the cost estimation process. This is an extremely difficult step and requires the project manager to know all nitty-gritty associated with the project. He must be aware of all costs, including the fixed cost variable cost sunken costs etc. The cost estimation process forms the baseline of the planning stage. In some scenarios, the project managers come up with multiple ways of executing a project, and the cost estimation acts as their guideline and help them to choose the right path.

Cost estimation methods are of the below types:

Parametric estimation: This estimation technique utilizes the historical data and is mostly accurate as trend analysis is also done in this process.

Bottom-up approach: This approach asks you to break down all the activities associated with the project. This is an accurate technique but is time consuming and may require a lot of budgets as well.

Three-point estimation: this is also known as the Program Evolution and Review Technique. Here you check all the possibilities, assumptions and uncertainties related to cost.

Cost budgeting:

Cost budgeting is more detailed as compared to the cost estimation. Here the project manager needs to fix a budget for each component involved in the project. This is an important step, and it determines the future cash flow of the project.

Cost control:

If there is any variance from the baseline, then cost control helps to correct the variance so that the cost can be aligned to the plans. This is a continuous process and must be done throughout the project lifecycle if the costs exceed the budget, then it is the job of the project manager to get the costs realigned to the budget.

Let’s look into some of the tips that will help you do cost management like a pro:

1. Consider utilizing project cost software: Project cost software aims in automating the calculation process, and hence manual errors can be prevented. Also, with the project cost software, you can have all the data at your fingertips and the dashboard will also help to portray the data and hence it acts as an efficient reporting tool. This software also helps in multicurrency cost management in case you are dealing with international clients. Hence these software’s facilitates benchmarking and standardization. To run a project smoothly, a cost manager must have the project cost management software.

2. Set up the project budget from the beginning: Once you have the budget ready from the beginning, then you know what to spend and where. After doing the cost budgeting, the project manager needs to get it approved as well.

3. Monitor the project budget now and then: It is important to set up the budget properly; however, it is also important to check from time to time and ensure if everything is happening per plan. If at any point you notice any variance of the cost during implementation, then you must make needful alterations so that you can stick to your budget. You may consider displaying the budget in the dashboards so that everyone is aligned and does not exceed the budget. You may also consider having regular meetups with your team to understand the challenges and constraints. It would help if you did not stop inspecting at any time. Timely inspections and supervision can prevent budget overruns.

4. Have the facts and figures in your fingertips: It is important to have the reports handy when you want to do successful cost estimation. The reports should be detailed and should have a visual representation of the facts and figures so that everyone can understand it easily. This will act as a motivation factor as your team members will know about their strengths and weaknesses as far as the project is concerned. Hence they will take the necessary steps to do better.

5. Look out for the problematic spots and find a quick fix: For doing successful cost management, you must be aware of the problematic zones that can lead to overruns. It would help if you made a sincere effort to control them from the beginning. For instance, one of the major problems on most construction sites is the large amount of materials wastage due to varying circumstances. Wastage of materials can usually happen during the procurement process, storage, and during utilisation. This can happen due to the buying materials of wrong specifications, buying more than what is required and in some cases, due to some unplanned and unrealistic circumstances. Wastage of materials also happens during transportation. So if you monitor this from the beginning, you can take the necessary steps to prevent wastage. You need to be proactive and neglect careless attitudes. Also, pay importance to the appropriate storage of materials. The relationship between time and cost is an important aspect in the control of costs on-site as any variation in time will have an automatic implication on cost.

Cost management is a continuous process and is important throughout the life cycle of the project. This may require you to pour your blood sweat and tears, but the result will be highly motivating. Successful cost management will improve the prospect of the project, and you can expect a better ROI through a proper cost management mechanism. Hence follow the steps mentioned above to do project cost management like a pro and expect rewarding results that will be valuable for a lifetime.