Stripping Project Management to Its Core: Cost Management Planning in Three Questions

When planning the cost of a project, you can use lots of tools and calculations to estimate things and take decisions. However, if you strip everything down to the basics, it is all about answering a few simple questions, in the simplest way available to you. For most projects (low to medium complexity), you won’t need anything else.

How much money do you need?

First, look through all the plans you created so far. Evaluate the project scope, the schedule, all the requirements, the risks you identified as being important, etc. For each item that involves money, write down the best cost estimate you can make. It doesn’t have to be 100% correct, just close enough to reality, likely to be true.
For making such estimates you don’t need advanced financial calculations. Simply ask the members of your project team, do a bit of pricing research on the web, or simply access your company’s information about supplier fees, the cost of past projects, etc.

It can happen that you don’t know all the details about what you want or need. That’s why it is good to consider adding a bit of contingency to your estimates. A good approach can be to add 10% to your calculations as money for covering the changes or additions you are not aware of, at the planning stage of your project.

Now... sum everything up, write it down and go to the next question.

What is your actual budget?

How much money does your project have? Compare the two and see if there’s any important negative difference. If there is a small variation between your estimated cost and the actual budget, you are good to go. If not, then...

Do you need to update your plans?

Review all the plans you created so far and adjust the elements that can be adjusted. Depending on the context of your project, you will have different options. Let’s share a few examples: renting equipment instead of buying it, renegotiating contracts with suppliers, rewriting the project schedule, choosing to eliminate the contingency budget for some of the risks you identified, reducing the scope of the project, etc.

The possibilities are varied and they always differ between projects and organisations. However, if you simply can’t find alternatives good enough to start the project (with a small amount of risk involved) say stop. Go to your board and renegotiate your budget. It is the wisest choice you can make at this stage of the project.

What do you think?

Is it OK to summarize cost management planning to just three questions? I think that, for most projects, they work. Only when it comes to complex projects, they might not be enough, and you need to add more questions, tools and calculations. However, you might think otherwise. Therefore don’t hesitate to share your view on the topic via the comments form below.

Related content:

Stripping Project Management to Its Core: Executing & Controlling a Project
Stripping Project Management to Its Core: Time Management Planning Simplified
Stripping Project Management to Its Core: Evaluating Project Risk with a Few Questions

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