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5 Min. Read

What Is Cost Management?

What is Cost Management?

As a business owner, it is imperative that you keep track of your project costs. This includes managing your cost allocation, estimation methods, and cost controls. This is known as project cost management. When you employ proper cost management, you can predict expenses you’ll have in the future. Thus, you can reduce the risk of going over budget.

You can calculate your project costs during initial planning. Once approved, you can begin work on the project. During the project’s execution, cost management ensures that you stay within your budget costs. To do this effectively, you must log all expenses.

When you finalize the project, you can then compare your predicted costs with your actual costs. The figures you get provide a cost baseline for all future costs and budgeting. The more you use project cost management, the better you will get at making sure your projects stay on track.

Here’s What We’ll Cover:

The Importance of Cost Management

Cost Management Benefits

Things to Consider

Key Takeaways

The Importance of Cost Management

As you see, cost management plays a vital role in keeping your expenses in check. Without it, your projects can easily get out of control and go over budget costs. What’s more, you won’t be able to plan for future projects. This is because you don’t have a cost baseline to go by.

Let’s assume for a moment that your business needs to expand into a larger building to meet consumer demand. You hire an architect, buy materials, and agree to construction workers at a specific hourly rate.

For this to be effective and work, you must make sure that you have the money to cover the costs described above. A proper budget will allow you to see whether you can meet your project’s projected expenses. If necessary, you can make adjustments to your project to ensure that it stays within your budget. As a result, your financial health will flourish.

Cost Management Benefits

So far, we’ve seen the essentials of cost management. Now, let’s explore its benefits. Your company can take advantage of these benefits and thrive when used correctly.

Prevent Going over Budget

When you set money aside in the early stages of planning, you can be sure that you don’t spend more than what you budgeted for. This is key in completing your project within given time periods. What’s more, you can be sure to stay within your budget. Eventually, you will be able to do so under budget.

Avoid Potential Risks

Like anything, your projects are subject to encountering unforeseen problems. Such surprises can derail your project and cause you to take a huge loss. It pays to be financially prepared for such disasters. In doing so, you can avoid potential risks and ensure that your project finishes on time.

So, be sure that you have money set aside solely for use on the unexpected. You’ll be glad that you did should something come up that requires you to have additional capital.

Perfect for Future Planning

Cost management gives you important data that you can use in future projects. After the successful completion of one project, you can use its metrics to help you budget for future projects. Over time, you will find yourself operating on tighter project budgets. Thus, you will benefit from cost savings on other projects down the road.

Your financial health will benefit as a result. And you will have new insights regarding how you manage projects going forward.

Things to Consider

Cost management isn’t always easy. If you are operating on a limited budget, it can cause your project to fall apart and fail to complete. You might run out of materials, labor, and other vital components.

And if you don’t make accurate estimations, you’re headed for trouble. An inaccurate process of estimating can quickly lead to going over budget. When this happens, it’s unlikely that you will be profitable.

Another potential risk comes with using old technology and equipment. These can slow down completion and make it difficult to hit your deadlines. As a result, you will spend more money trying to get caught up. This will soon lead to going over budget and compounding the scenarios described above.

Key Takeaways

As the project manager, you are responsible for cost management. This means it’s up to you to plan your project’s budget. Furthermore, you must keep track of spending and estimate your expense totals. To ensure accurate cost management, we recommend FreshBooks.

Project management has never been so easy. You will have total control over your project, from time tracking to client invoices and much more. What’s more, you can try FreshBooks for free to get a feel for it before you buy.

And if you’re looking for even more small business tips, be sure to check out our Resource Hub. We discuss the essentials of running a small business. You will find articles and guides that help you make the most of your business ventures.