Developing and maintaining a budget plays a pivotal role in determining project success. Project managers anticipate the costs in every project phase and create an expense plan accordingly during the planning stage. After all, no project manager wants to be in a scenario where their current project’s expense is out of control.
Improper resource allocation, sudden change in project scope, etc., can blow up project costs and cause budget overrun. It drastically affects the profit margins, profitability, and functioning of an organization. Therefore, the project manager needs to monitor the project costs at each milestone to ensure that there are no discrepancies.
Organizations can implement specific strategies to reduce project management costs and complete the delivery satisfactorily. This blog discusses how resource management software can help reduce project management costs.
First, let us look at the various reasons to control project costs.
Why do we need to control project costs?
According to a PMI report, 43% of the surveyed IT projects resulted in cost overruns.
This is undoubtedly a hard-hitting reality for most of the projects. Budget overruns not only impact their margins but also affect the financial stability of an organization. Therefore, implementing project cost management strategies is imperative. It is a continuous process done throughout the project lifecycle that ensures a project’s budget is on track.
Maintaining and controlling the budget also helps in overseeing & managing expenses, tracking forecast vs. actual cost, foreseeing financial risks, etc. In case of any cost variances from the baseline, managers can also implement corrective measures well in advance.
Thus, it is vital to control project costs to increase the ROI and gain an estimated margin. In addition, cost control can provide the level of transparency that decision-makers require to respond quickly to the situation.
Given below are some ways to reduce project management costs.
Effective strategies to reduce project management costs
As mentioned, effective cost management techniques are necessary for the timely delivery of projects without compromising the quality of deliverables. Below are some strategies that will help reduce project costs.
1. Provide sufficient lead time to find competent resources
Competent and skilled resources are necessary for timely and successful project delivery. But often, project managers send resource requisitions at the eleventh hour to the resource manager. As a result, managers hire resources with higher cost-rate at the last minute and overshoot the budget. To avoid this, resource managers should be given enough lead time to find the best-fit resource with the right skills for the project.
In case of resource shortfall, the lead time will help managers implement resourcing treatments such as organizing training/upskilling programs or hiring a permanent/contingent workforce. Thus, it eliminates the last-minute firefighting of competent resources and avoids hiring high-cost or underqualified resources.
2. Use cost-effective global resources judiciously
One of the ways to reduce project costs without compromising the quality is by identifying and allocating cost-effective local and global resources across matrix boundaries. Since resources are significant investments, managers must create the right resource mix to prevent budget overruns.
Thus, using a resource management tool, managers have unmatched visibility of employees based at different locations, their skills, charge out rate, etc. They can then identify and allocate cost-effective global resources from low-cost locations. Managers can also replace expensive highly-skilled resources and utilize similar skilled resources from cost-effective regions. This helps maintain the project’s financial health and reduces project costs while ensuring its quality.
3. Track forecast v/s actual spending regularly
Project managers must regularly monitor the critical project financial indicators such as costs, revenue, profit margins, and overheads. It will eventually help to avoid budget spikes. In addition, they can also control costs by regularly tracking and comparing the actual spending against the estimated budget.
In case of any variance, corrective measures can be implemented to mitigate project risks ahead of time. In addition, comparing the forecast vs. actual spending helps improve future estimations for similar projects.
4. Monitor & optimize resource utilization
Allocation of over or underqualified resources can drastically affect the project. Conversely, when a resource is overutilized, it causes excessive stress and burnout, leading to project delays and budget overruns. Therefore, it is necessary to track employee utilization levels and ensure that no one is over or under/overallocated against their capacity.
In case of overutilization, they can also implement resource leveling and smoothing techniques to ease the workload. Thus, it facilitates managers to optimize the resource health index, improve productivity, and eventually complete and deliver the project at the right time.
5. Create the right resource mix
A mix of highly skilled permanent employees and contingent workers can keep work operations feasible. This fills the short-term requests, reduces bench time, minimizes resourcing costs, and significantly reduces hiring/firing cycles.
Managers can analyze the project requirements and compare them with other pipeline projects based on the skill demand. This helps determine if it is a recurring demand or limited to one project. Accordingly, they can form a balanced pool of permanent and contingent resources. This will eliminate unnecessary firing and reduce overhead costs in a project.
How can resource management software help reduce project costs?
The resource management tool provides 360-degree visibility across the enterprise, enabling managers to view the resource profiles with critical attributes such as skill sets, competencies, cost rate, etc. This allows them to identify skilled resources with a relatively lower cost rate. In addition, the advanced filter of the software also allows managers to identify skilled resources from cost-effective global locations and significantly reduce project costs.
The various reports on the tool, such as forecast v/s actual cost, help analyze the variance in the estimated budget and the actual expenses. Performance reporting tools for project management can also help track the progress of various tasks and activities within a project. They provide real-time updates on key metrics such as task completion, budget allocation, and resource utilization. This allows the project manager to have a clear understanding of the project’s current status and make informed decisions based on the data.
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Cost management is one of the cornerstones of a successful project. It gives complete control over your expenses on every task throughout a project. Thus, following a perfect cost management strategy combined with a resource management tool will help complete the project cost-efficiently. It thus contributes to meeting all your project deadlines without exceeding your estimated budget.