Project managers must always remember that, one of the main reasons why projects are failing, is that the costs are spiraling out of control. To this end, there are ongoing measures, checks, and controls to keep the costs in check.
The control costs is a project management process that involves measurement of the current state of project costs, identifying deviations in the sense of cost by comparing the cost baseline, estimated costs, and project performance, and creating change requests for updates to the cost baseline when necessary. The fundamentals of the control costs process are applied as part of;
When should the control cost process be done?
The control costs process is conducted continuously during the life of the project and it is part of the cost management knowledge area along with the monitoring and controlling process group.
Thanks to this process as a project manager, you can minimize the effects of individual and project risks on cost and you can immediately take action about preventive and corrective actions. In the control costs process, you can also measure expenditures related to seasons and you can measure the performance of the budget.
Change management is also a part of the control costs process. Because, as a result of this measurement we may find need of updating the budget, we can create change requests. Also, we need to investigate the root causes of deviations in project performance from the cost baseline. Another aspect of change management here is we manage the approved changes when they are implemented and prevent changes without formal approval processes.
There are two basic indicators for controlling costs. These are cost variance and cost performance index. A cost performance index is the ratio of earned value to realized cost. In this way, we have an idea of the efficiency of the realized cost. Cost variance is the difference between the earned value and the realized cost.
Which outputs are created in the control costs process?
Cost forecasts: It is a natural output of controlling costs. By identifying deviations, we will have an idea about the updated forecast of the costs.
Change requests: Again a common output of control processes. We may come across the need for changes in any processes related to the cost aspect.
Work performance information: This will be converted into work performance reports later.
Inputs to the control costs process
- Cost management plan: It is the guidance we desperately need to follow for measurement, controlling and monitoring costs.
- Cost baseline: By using the cost baseline we will simply compare it to the actual results of the project.
- Performance measurement baseline
- Lessons learned register: Previous experiences will be helpful to identify points out of order.
- Project funding requirements
- Work performance data: This will be given as work performance information output at the end of the process.
- Organizational process assets: Cost management policies of your organization, informal applications, existing procedures and guidelines, tools, and software that can be used to track costs are examples of OPA's.
Tools & Techniques used in control costs process
- Earned value analysis: This is the main method that is used to control costs. It is done by calculating the cost performance index of the project.
- Expert judgment: The opinions and judgments of all kinds of experts are helpful.
- Project management information system: Especially software that is part of PMIS is recommended to be used when it comes to controlling the costs.
- Reserve analysis: Both contingency reserves and management reserves will bring about costs to the project. Therefore a reserve analysis is conducted to keep costs under control.
- To-complete performance index
- Trend analysis
- Variance analysis