My Projects

May 12, 2008 2491 comments so far

Basic Project Cost Controlling

Project cost controlling is done the same way as project resource controlling. If you are working mostly with human resources, even the deviations between baseline and projection will actually be quite close to each other.

This said, I propose we concentrate first on the differences rather than on the similarities:

  1. In project cost controlling - analogous to cost planning - we are looking at different types of costs rather than breaking the numbers down by individual (resource) assignments
  2. When dealing with personnel costs we have to know whether we are really looking at internal costs (based on internal hourly rates) or at external costs (based on external hourly rates), i.e., proceeds

Note that resource controlling provides the foundation for personnel costs/proceeds-oriented cost controlling:

  • Internal costs are calculated by multiplying the effort by the corresponding internal hourly rate
  • External costs (proceeds) by multiplying the effort by the corresponding external hourly rate

The external rates you are using are typically depending on the kind of resources you are looking at (standard rates) or are negotiated for this particular project (project rates). The internal rate is normally the actual cost you have to pay for the resource to get the work done. The difference between external and internal costs is the profit margin - but more about this in a future post.

As you will have already expected, a typical project cost controlling table will look very similar to the resource controlling table we covered previously:

  • Baseline
  • Actual
  • Remaining (baseline - actual)
  • Projection (actual + estimation)
  • Deviation (projection - baseline)

If you need the level of detail you might break the table down into the different cost types you used in your cost baseline.

Important: Cost controlling must be done on the same level you do the planning - it is the same as for resource controlling. If you do not plan, track and control on one and the same level you are comparing apples and oranges.

I know, experienced project managers will probably find this too high-level and for "rookies" it might already be too much at once. However, I hope it was still a little bit useful for some of you... ;-)