Costs matter

Cost management is sometimes seen as a chore in project management rather than a central part of it. While most project managers are required to report actual costs to date against forecast costs, there is much more that can be done in most projects on cost management than that bare minimum. (Costs are not necessarily in monetary terms but can be in terms of days or resources.) On large projects there is usually a project accounting specialist to run the cost management side of the project, but the project manager will still need to understand the principles of project cost management in order to make best use of such a specialist.

There are two different needs for cost management skills in project management. One is the need to set the right budget for the project, that is, to estimate the cost, to understand the risks of inaccuracy in the estimate, and to pick the right level of probable accuracy of the estimates, both for the particular project and for the owning organization. The other need is to manage the project within whatever budget has been set. These are very different needs. You can be an excellent project manager and pursue a great project management career, running the largest projects, without ever acquiring or needing the skills to plan project budgets. And there are people who make a highly successful career out of budgeting for projects without ever getting involved in the project management that follows corporate and structured finance departments of banks, for example, have many such people. So it is expecting much to cover both subjects in a single chapter. In this chapter we do not attempt to enable you to reach the level of expertise in project budgeting that is required of a bank corporate finance analyst or a professional project budgeteer. The general aim of this chapter is rather to give the practising project manager enough of an introduction to the subject of project cost management so that they know what needs to be done, not so that they can necessarily do it.

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