Cost Management Expertise
Cost management is the process where a business controls and plans its costs through customized accounting procedures. It can be applied to the company in general or to specific projects. When implemented, cost management allows a business to reduce the likelihood of going over budget, and is an essential feature of a successful business plan.
To understand the concept, it is useful to consider application to a project. In the initial budgeting, anticipated expenses are determined and quantified. During the execution of the project, each capital expense is measured against the budget for that item before it is approved for purchasing. Similarly, other project expenses such as fabrication and engineering costs are measured against the budgeted estimates. This helps ensure that costs are maintained within budget to the maximum extent possible. A record of all costs is kept.
At the conclusion of the project, the following may be determined from the cost record and further analysis:
- Whether the overall budget (and margin) was maintained, or whether the margin had been eroded with cost overruns and unexpected expenses.
- How accurately costs were estimated in the first place
- Whether or not all significant expenses were anticipated
- How well the project objectives were defined initially
- What snags had developed and their impact on time and budget.
From this analysis, expenses for future projects can be predicted with greater accuracy, objectives defined better and pitfalls avoided. The research necessary before a project is begun will be more clearly understood, including equipment and component costs, design and fabrication time, regulatory compliance, etc. When a project is clearly and completely defined, costs will be managed effectively and a finished product delivered within budget is much more likely to be a reality.