In today’s volatile marketplace, the importance of cost control procedures can’t be underestimated. Any company, whatever its size that wants to grow, doesn’t want to expand at the expense of its bottom line.
Yet, a mere 18% of US companies met their cost reduction targets in 2019. While just 7% hit or exceeded their cost reduction targets.
(Setting cost reduction targets is only effective if you're able to hit the mark!)
These stats stress the importance of practical project cost management tools and techniques.
So how can your company enhance its cost management techniques and procedures?
The answer: By utilizing the right cost management tools.
Let's explore this in greater detail...
The Importance of Cost Management
When undertaking any kind of project where costs are involved, it’s crucial to manage your expenses.
The principles of project cost management are simple. By managing a project’s costs, you’re setting financial parameters that can’t be exceeded. These limits define your project by fueling all project-related decisions.
If you don’t set expense limits, your project costs can escalate and be difficult to reign in. In worst-case scenarios, your expenditure could exceed the financial benefit of the project itself.
Get Your Costs Under Control
Some companies still operate by just using spreadsheets to manage their costs. Yet, cloud-based solutions offer a securer and more flexible user experience for procurement specialists.
And they’re more affordable than you might think! This kind of software helps you get your costs under control. Namely, by providing features that enable you to:
- Take cost control process steps
- Manage suppliers
- Save money
The US Chartered Institute of Procurement and Supply USA (CIPS) says that robust procurement procedures help organizations to control their spending, prevent corruption, and protect their brand.
Needless to say, that with the right software to hand, you’ll be able to achieve precisely that.
Having said that, let’s take a closer look at some of the things cost management tools have to offer:
You Can Estimate Your Costs
Being able to estimate and forecast the expense of your project is essential. So, any project cost management tool worth its salt should do not only that but also categorize expenses by:
- Fixed costs
- Variable cost
- Direct costs
- Indirect costs
Using cloud-based software to manage your costs simplifies the process of setting KPIs (Key Performance Indicators). The right software should track your project performance and assess whether you’re exceeding your budget.
For example, you should be able to see:
- Actual Project Costs: This is the actual cost from the start date to any given time within the project timeline
- Project Cost Variance: The difference between the project cost and the baseline you’ve set
- Project Planned Value: The cost of the project’s components or activities that you’ve planned for
- Project Earned Value: How much the work completed so far costs from the project’s start date to any given date in the project timeline
- ROI: Return on investment, how profitable the project will be.
Picking and using software that permits you to update and adapt your price estimates as the project’s schedule changes, is an absolute must.
You Can Budget Your Way To Success
One of cost management’s most notable objectives is to set accurate financial forecasts. Then once you’ve established all your costs, you can finalize your budget and get it approved by the necessary decision-makers in your company.
The right software will generate weekly and monthly expenditure reports for you.
That way, you’ll never exceed your budget and have to fund unforeseen expenses.
You should be able to program your software to work for you.
By setting it to notify you and your team whenever you’re close to a budget limit. This should provide the time you need to re-scope and review costs or take action to prevent exceeding the budget.
You Can Measure Your Project's Performance
As we’ve already mentioned, high-quality cost management software allows you to consistently and regularly keep track of how your project is performing.
Most platforms give you access to an online dashboard where you can see at a glance all your real-time parameters. By this we mean, your estimated costs, actual costs, schedule, and any variances within it.
You should also have an overview of how many project targets are completed, and how many remain outstanding.
With all this info at your disposal, you can see the variance between your baseline costs and what’s actually being spent.
Having this data at your fingertips allows you to take effective action to avoid any overspending.
(Accessing project information should be an effortless and speedy process.)
All things going well, you should be able to reach your minimum project cost target.
You can use your SaaS solution to track expenditure and performance against your project’s progress.
It’s also possible to record any variance in costs. That way, when you look at the final total costs of your project, you can prove you successfully forecast all your expenditure to avoid excessive spending.
You Can Deliver Reports Fast And Easy
Keep your costs and timelines visible at all times and be accountable throughout the project by using a cost management tool with accessible reporting functions.
You should be able to design and customize your own reports that contain real-time spending analytics.
Your software should compile these reports automatically. This empowers you to track your spending every step of the way. It also makes spotting purchasing trends much easier, which may prompt further cuts later down the line.
By using a cloud-based platform with reporting tools that suit your project parameters, you can also share your reports securely to authorized team members.
Interestingly, a 2019 Capterra report on project management software found that the most used features were reporting and task management. This is hardly surprising when you consider how integral data compilation is to successful project management!
Use Tools That Allow You To Learn
With every project you run, you’ll learn something new. Whether it be from its successes or failures, you’re bound to take something away from the experience.
So, before jumping into the next project, evaluate the last one. This will help you to avoid the same pitfalls and keep a clearer focus. Needless to say, by taking this approach, you’re far more likely to keep your costs in check.
In other words, we urge you to benchmark your project both internally and externally using project cost management tools.
Let us explain what we actually mean by ‘internal’ and ‘external’ benchmarking.
Internal benchmarking refers to taking what you learned from project 1. For example, how it ran, what it cost, whether it met your pre-set targets, which teams and individuals met deadlines, which didn’t, etc.
Then you need to analyze this info to feed it into project 2. In theory, this should help you to improve the performance of the project. After all, you’ll have all the data you need to enhance your internal project management processes.
Your ultimate goal should be to continually improve upon the success and costs of your previous project. Your chosen software should give you the data to do this.
Namely by storing and analyzing info from current and completed projects, so that you can keep an eye on valuable project metrics. Over time you’ll get a better feel for whether you’re improving.
Conversely, external benchmarking is measuring the success of your project against those of your competitors.
For example, if you’re a construction company running various building projects, you could compare build completion times against your competitors.
Your chosen SaaS should enable you to internally and externally benchmark your work by:
- Collecting old and new project data and analyzing it to compare successes and failures
- Comparing project estimates against earlier projects, with the view to boosting project costs, forecasts, and budgets and making them more precise
- Importing and exporting data from other tools – for example, Excel and Google Sheets
- Creating relevant reports that are interactive and shareable
You get the idea.
Avoid Any Pitfalls
If COVD-19 has taught us anything, it’s that businesses not only have to be able to adapt quickly and responsibly, but they also have to be able to handle unforeseen natural disasters.
The right tools allow you to factor unforeseen occurrences in your project plan. Ensure that you allow room in your budget for the unexpected, especially if this could result in delayed timetables, staffing reductions, and increased costs.
It’s also important to ensure that whichever tool you go for seamlessly integrates with your accounting and ERP (Enterprise Resource Planning) platforms.You want software that enhances what you already have, not a product that isn’t compatible with popular programs. For instance, Sage 300, Oracle, Xero, etc.
Security is another major consideration.
Project cost management tools that don’t guarantee the safety of your business’s data will compromise the integrity of your project.
So, it’s worth finding out what kind of security options your preferred software provider offers. This is especially important if you’re looking at a cloud-based option.
Ask them about their encryption processes and the likelihood of data leaks. You want assurance that your data is safe. Your software should also ping you over error and bug alerts.
That way, you (or your software provider) can take the necessary steps to rectify the issue(s).
As you’re already contacting the software company, use this as an opportunity to evaluate the quality of their customer support. Trust us; you’ll be glad you went for a brand with an excellent customer care team if you experience hiccups along the way.
Lastly, don’t forget to factor in inflation, especially if your project is going to span over more than one fiscal year.
Stay Within Your Budget
Your project management tool has to be affordable. If you’re a small business with limited project costs, you’ll have to restrict your limitless ambitions to what you can afford.
Any sized business will want to get their hands on a decent cost and procurement software. However, no one wants to spend hundreds and thousands of dollars to get the features they need to manage their spending.
Ideally, you’ll find a solution that offers a variety of pricing options. That way, you can scale up your subscription as your business grows.
Whatever the price tag, weigh up the benefits of purchasing it against your planned expenditure. You’ll also want to double-check that it offers all the features and functionality we’ve outlined above.
If the company offers a freemium version of their software or a free trial period, make the most out of that. Use this to get a feel for whether the program is a good fit for your business, before spending any of your hard-earned cash.
Ready to Improve Your Project Cost Management Techniques?
So now you have a solid overview of why choosing the right project cost management tool can help you achieve both your short and long term business goals.
Hopefully, making the right choice won’t be too daunting a prospect.
With the right software, you should be able to carry out all the above tasks without costing the earth.
To find out more about how project cost management tools and techniques can help your business, ask our Tradogram team for a free live demo today. You can also read other project management related articles in our blog.