Project cost management

Project cost management Introduction The successful design, development and implementation of projects are very complex and at times daunting tasks for many project managers. The sum of growth in competition and globalization, institutionalization of innovation-based economics, rapid development of technologies, the uses of outer resources, increase in the significance of customers focus and the shortening of products and services cycles means that projects cost management has become a multifaceted issue for majority of businesses today. In essence, this has resulted in the need for the adoption and focus on project based on cost management of business activities. Indeed a lot of researchers emphasis the need for a multi-project environmental management of projects that pays cognizance to the key ingredients that will ensure for the success in projects. This paper will synthesis, analyze and dissect the key attributes that are seen to be inherently important for ensuring effective project cost management. Towards this, an insightful and succinct discussion of the following key factors for successful projects shall be done; appropriate senior management levels commitment to the project, adequate project funding, project requirements analysis and specifications, stakeholders involvement, risks management and presence of a contingent plan. While several dimensions could be pursued under each element only few will be highlighted Ensuring for effective project cost management Phillips (1) illustrates that From IT to construction, most projects have to purchase materials: routers and cables, shingles and cement, and so on; we must always buy some things to complete the project work. Without even underlining the scope or schedule of a given IT project, funds must be availed and properly managed and appropriated to achieve the goals of the project. In the cost management of IT projects, there are three major estimates cost techniques that project managers should make use to effectively manage their projects. These include the Ballpark estimate, the budget estimate and the definitive estimate. According to Barkley (68) Ballpark estimate is also known as the rough order of magnitude (ROM)which is based on high-level objectives, provides a birds-eye view of the project deliverables, and has lots of wiggle room in that most ROM estimates are dependent on the industry and have a range of variances from -25% all the way to +75%. The budget estimate that is also known as the top down estimate is more accurate than the Ballpark estimate and is always formulated at the beginning of the projects life. It includes a number of conditions just like the Ballpark estimate in that it takes into consideration a range of variances and assumptions that are characteristics of any projects estimation. The definitive estimate or bottom up estimate is the real opposite of the budget estimate (Haughey, 29). In effective cost management of an IT project, it is imperative that all the estimate methods are used to mitigate the effects of overhead costs on the project. Baldwin, Rose-Anderssen, Ridgway, Allen, Lopez, Strathern, and Varga (1), clearly demonstrates that The definitive estimate requires a work breakdown structure (WBS) and a WBS is not a list of activities, it is a detailed description of deliverables-oriented decomposition of the project scope. The attention to the creation of goods and services and technologies has significantly increased over the last few years that have prompted and preconditioned the need for better and more efficient projects cost management. This call for paying cognizance to the following key factors; Senior management support The success of projects will to a large extent rely on the interests, support and commitment of the senior management. This is in order to ensure that everybody in the project team and indeed the whole employees are focused and committed. Most projects in organization are sometimes conceived, funded and developed without appropriate senior management involvement or approval. Armstrong (25) has for example noted that some projects go forward without the management clearly conceptualizing what the project entails. A distinction between mere approval and commitment should be clearly discerned so that the projects run smoothly. According to Dennis (87) and Blair (13), most projects fail when the senior management lacks a clear understanding and a paucity of the projects perceived benefits, risks and difficulties. This is fundamental because the management plays a central role in costs appropriations and budget allocations for project activities. This means that while the projects approva l may actually have been acquired, in the euphoria of getting the projects approved; some of the risks may be ignored or glossed over. Efficient project cost management especially in the field of IT should however ensure that projects approvals are not based on hype and unrealistic calculations but on a framework that encapsulates a realistic assessment of the projects benefits, risks and costs. Adequate financing or funding for the project This forms the fundamental groundwork for the achievement any IT related projects objectives and goals. Most IT projects being initiated will require some substantial funding and resources deployment because they are always characterized by abnormally huge overhead costs. However, Kerzner (11) and Loosemore, Raftery and Reilly (161), have noted that ample project funding is not in itself a panacea to projects success. It has been advanced that inadequate project funding will most invariably result on delivery of less than promised. The realization of projects success has been positively correlated with efficient resources management and budget controls. According to Armstrong (32) effective resources management as well as its impact on the compatibility between the costs management and project value accumulation has been empirically proved in literature. Researchers show that in order to avoid the gap between the organizational strategies and the limited resources, it is purposive that available resources are reviewed and aligned to the budget in a seamless manner. This means that a lot needs to be arranged before and also during projects executions. A clear delineation of all the resources that are essential to the successful running of the project and a formulation of a budget that captures all the needs and requirements is therefore important. Armstrong (33), succinctly state that A project funding should be seen as a continuing and flexible process in that while a reasonable estimate of project expense must be made to obtain initial approval, this figure should not be considered as the final project cost. This point is further buttressed by Meyer (172) in illustrating that As the true scope of an IT project is revealed, the project manager can more accurately identify project expenses and recalculate the costs at several checkpoints in the project life cycle so that the new figures are communicated to senior management. Requirements analysis Requirements analysis should be carried out in order to develop the architectural design or frameworks of the specific IT project for the initiation and inception of the project. This calls for a thorough discussion between the clients and/or the stakeholders in order that all the salient issues are brought to the fore and the project is set off on a sound footing. According to Armstrong (27), client consultation at all the stages of an IT project development should always be done in order to avoid situations where repeated references to the project requirements are the case or projects are discontinued entirely. Requirements analysis should be detailed and the analysis or the project manager should visit, communicate and discuss the project requirements with the clients on a conclusive and comprehensive manner. A clear delineation of what will be delivered or not within projects scope should ideally be done. Project managers will attest to the fact that taking a thorough requirement analysis ahs the benefit of arriving at an accurate estimate on a project. This will reduce the effects of time wasted in search of more funds and convincing clients and other stake holders to increase funding after its initiation. In addition to the above, it comes with the added advantage of taking due care of crash programs and thus protects the projects from the effects external factors (Meyer, 171). Development of a comprehensive project plan and its cost components Basically, there are three main benefits to be realized through the development of a clear, comprehensive and elaborate project plan. One such benefit is that through adequate planning, the planners are able to present a clear and well documented or properly focused understanding of project. Secondly, adequate planning ensures that all issues are raised to help avoid instances of overlooking some issues that may later prove problematic. Finally, adequate planning reinforces and helps build confidence in the success of the project. Jiang and Gary (20) elucidates that project planning should never be viewed as a waste of time. This point has been buttressed by Armstrong (29) who has advanced that a very strong correlation between the lengths of time allocated to the project planning and the ultimate projects success abides. Stakeholders involvement The attainment of all the stakeholders involvement has been cited as an important ingredient in the success of IT projects in organizations. This means that every stakeholder in the organization is seen too own the project. This ensures that there are no complains about the project contents and performance when it is completed. This becomes more poignant when it is noted that projects warrants large investment of resources such as time, efforts and money. The involvement of the employees, internal customers and other important stakeholders should therefore be paid utmost cognize (Raz, Erez, 48). Frequent project status reporting should accompany the progress of the project and this should be done on as a regular interval in as far as is soundly possible. As early as the projects life, frequent reporting should help spot and identify adverse issues, as well as how these can be overcome. Jiang and Gary (31) have noted that it is not important that regular updates are provided but the accuracy of such reporting be the case so as to ensure that the status of the projects progress are accurate, realistic and timely. Risk assessment in an IT project It is important that a detailed risks assessment is carried in an IT project so as to ensure for the success of a project. Essentially, risks assessment may fall into two categories, i.e. the more usual and obvious risks and the risks that may be generated from the functions and requirements of a particular problem (Raz, Erez, 53). A businesslike approach to project management requires carefully considering and addressing these risks with internal customers and senior management as part of the projects approval process and if the risk analysis leads to a decision not to move forward, it is much better for everyone involved that the decision is made sooner, rather than later (Raz, Erez, 55). Armstrong (34) has advised that it is prudent to consider the possibility of some failures in the projects that would call for the development of contingent plans to overcome difficult situations should they arise and a project may have to incorporate items that were overlooked, or changes in the business needs associated with the project. This may result in delay of some projects that were dependent on this project or indeed some other business activities. Successfully and efficient project cost management will therefore entail the development of contingent plans to mitigate against such occurrences. In the course of an IT project development, a lot of issues and difficulties may arise. Thus, while some problems may have been anticipated, some occurrences, the need to clear to meet deadlines among others may create insurmountable pressures and tensions. These must be mitigated through the adoption of sound cost management approaches that ensures that issues and matters arising are addressed and mitigated. In some instances, continued top management support must be continually sought so that commitment to the project remains true, and un-anticipated funding requirements are met or delays in operations are understood. In obtaining senior management support, project managers must be willing to present an accurate picture of the potential difficulties inherent in the project in that insofar as is practical, senior management must be given a realistic assessment of the potential for difficulty and be willing to stay the course if things go wrong (Dennis, 95). Conclusion Effective project cost management is a multifaceted issue especially in an IT related project and difficulties abide in the identification and management of all potential difficulties and the ramifications that are associated with the successful development, budget appropriation and implementation of projects. This will depend to some extent on the size of the project where it is seen that the larger the size, the greater the probability of unseen contingencies. In large IT projects for example, the task can prove overwhelming and massive to coordinate. Organizations attempting to find and resolve all IT project difficulties and potential difficulties may not find the issues presented here as all inclusive as there are a lot more issues that must be paid cognizance for the efficient project cost management. However, while the draft does not strive for perfection, it can nonetheless be adjudged that paying attention to the issues raised, a project manager will be better prepared and k nowledgeable enough that undoubtedly greatly enhances the likelihood of a successful project and cost management strategies. WORKS CITED Armstrong, Mark. 2007. Simplified Risk Assessment. Engineering management journal.10, 1: 19-24. Baldwin, James, S., Rose-Anderssen, Chris., Ridgway, Keith., Allen, Peter, M., Lopez, Alvaro.,Strathern, Mark and Varga, Liz. (2006). Management Decision-Making: Risk Reduction Through Simulation. Website: http://www.palgrave-journals.com/rm/journal/v8/n4/pdf/8250020a.pdf Barkley, Bruce. 2004. Project risk management. McGraw-Hill Professional. Blair, Gerald, M. 2007. Planning a Project. http://www.see.ed.ac.uk/~gerard/Management/art8.html?http://www.ee.ed.ac.uk/~gerard/Management/art8.html Dennis, Lock. . 2007. Project management. 9th edition. 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