Project Cost Management Done Right
Starting a new project always brings many elements to factor in, ranging from basic concepts, such as a general plan or layout, tools, and goals that must be achieved. You also must deal with more specific items, like schedules or deadlines, materials, and employees. Although all these factors are crucial when managing a successful project, the most important aspect of the whole endeavor is the cost estimate.
Accurate project cost management is crucial when trying to stay within budget, especially when the resources are limited. A cost estimate must be precise, transparent, reliable, and also flexible, allowing slight changes as the project evolves.
Efficient cost calculations are extremely important, especially for small businesses, where costs can quickly skyrocket, putting the whole project in jeopardy and ultimately resulting in huge losses for the whole company. When you calculate project costs, you have to take into consideration resources, such as materials, man-hours, tools, services, but also create schedules, which will help you manage costs over a set timeframe.
So how can you effectively calculate the cost of a project and guarantee its success? Here is what you need to take into account:
1. Make a rough plan of your project and estimate the basic costs
The first thing to do is to list all the steps that are involved in the new project and what needs to be done for the project to become successful. You should think about fixed costs, such as permits, taxes, and other general fees that are typical in your industry.
Add to your list a rough estimation of how many people will work on the project, possible relocation costs, wage costs, building-related costs (such as rentals or moving costs), as well as equipment and machinery costs. You should try to include every major cost in this first step and, if possible, ask for a second opinion, preferably from your superior or second-in-command.
To calculate all the project cost and monitor your expenses in real time, you’re going to need a project KPI dashboard.
2. Estimate how much time will the project take
Establish a rough schedule as soon as possible and determine how much time each major step will take.Try to allocate enough time for each major task (many managers suggest one week for each task), but remember to factor in various other components, such as possible errors, delays, or repairs.
If you manage to create a good, comprehensive schedule, you will be able to estimate labor costs better, assign workloads to certain workers more efficiently, and meet all the specific deadlines. If you don’t have enough experience in this area, it is a good idea to ask or consult a colleague who has previously done project cost management for a similar project, as it saves a lot of time and money.
3. Manage the labor costs
Labor costs are usually some of the most important financial aspects for every project, often encompassing more than 40% of overall costs. You should factor in personnel costs, such as wages, overtime pay, and supervision. Make a precise estimation of how many workers you need, their exact roles in the project, as well as their pay range.
Remember to allocate additional funds for any external labor costs (additional persons that you may need to hire for the project). These may include private contractors, subcontractors, security personnel or consultants.
Learn how to manage multiple projects by reading this guide.
4. Include materials or tools
Materials and tools eat up an enormous chunk of your project funds. If not properly estimated, can make your project fell through due to a lack of money. To avoid this, try to include any material that might be needed for the project. These can be very diverse, depending on the type of project: estimate the number of bricks (when building a house), the size of the hosting plan (when creating a website) or the number of flyers (for an offline marketing campaign).
If you’re worried about your project budget going over budget, you should read about these 5 possible situations you should avoid.