Managing cost is a fundamental discipline of any Project. However Project Cost Management is more than raising purchase orders in your organisation’s purchasing software and reviewing invoices for payment. It is more than challenging invoices for payment. Rather, good Project Cost Management operates in addition to your organisation’s payment and purchasing systems.
Purchasing and Payment Systems
Purchasing and payment systems are used by organisations to maintain efficiency and control of the purchases that they make. Their value proposition is in streamlining the mechanics of payment. Typically the system can generate reports including values committed to each vendor and value paid to each vendor. And while they are an accurate representation of the Organisation’s liability, they are not a good indication of project financial health.
Although a harried or junior Project Manager might be tempted to manage financial forecasting by subtracting invoices spent from the overall budget, this “remaining budget” is a limited and reactive calculation that will not provide the project manager with the necessary information to make good, forward looking decisions.
What is Project Cost Management?
“Remaining budget” is a useful piece of information but it is a single piece of information. It does not forecast the remaining value of work to be completed, when it will be spent, or the value of potential changes ands risks. Project Cost Management considers all of these things in addition to value of work committed (purchase orders raised), paid (invoices) and the remaining budget. With a robust cost management practice the Project Manager knows what amounts are going to be spent, when, and what could be spent and thus make forward looking decisions with confidence.
A good Project Cost Management routine consists of:
- Regular verification of values committed and paid between purchasing and payment systems and project records
- Regular updates to forecasts of when remaining committed values will be paid
- Regular review of anticipated changes and associated values, and thus potential spend
- Regular review of issue and risk register and associated values, and thus potential spend
- Regular finance review with both Organisation Finance representatives and Project Executives.
A good Project Cost Management routine builds on the information within Purchasing and Payment systems and empowers the project manager to make proactive, forward looking, risk based decisions.
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