Cost Management Tools & Best Practices

Originally published  August 18, 2022. Updated February 14, 2024.

Your project budget is a crucial consideration to measure your project’s success. While balancing project schedules, client demands, resource availability, and many other factors can be challenging, failing to budget in one area can throw a project off track.

In this article, we’ll talk about tools and best practices you can apply to your cost management process.

What are Cost Management Tools?

Cost management for projects refers to the process of planning, estimating, budgeting, financing, funding, and controlling the costs involved in a project. It involves identifying all the costs associated with the project and creating a cost baseline which serves as a reference point for monitoring and controlling costs throughout the project's lifecycle. 

Cost management tools enable businesses to monitor and track their costs and expenses, identify areas of inefficiency or excessive spending, and make informed decisions to optimize their cloud spending. By providing detailed insights and analytics, cost management tools help businesses control and reduce their expenses, ultimately leading to significant cost savings.

Benefits of Using Cost Management Tools

Avoid Overspending

By implementing cost management tools, project managers can gain better visibility and control over project costs in real time. This can help project managers make informed decisions and adjustments to keep costs in check throughout the project lifecycle.

Effective Planning

When project managers have access to cost management tools, they can accurately estimate the costs associated with a project. This allows them to plan and allocate resources more effectively, ensuring that there are no financial surprises along the way. By having a clear understanding of the costs involved, project managers can make informed decisions and develop comprehensive plans that take into account budget constraints, which leads to more successful project outcomes.

Informed Decision-Making

When managing a project, it is crucial to have accurate and up-to-date information regarding costs. Cost management tools also provide insights into the potential impact of changes in project scope or requirements on costs, enabling project managers to evaluate the feasibility and potential risks associated with such changes.

Exposes Opportunities for Operational Optimization

Cost management tools enable project managers to detect areas within the project that are incurring too much cost and can be streamlined. This allows them to identify inefficiencies and wasteful spending and can initiate efforts to pursue improvements to how resources are allocated.

Better Risk Management

When project managers have a clear understanding of the costs involved in their decisions, they can accurately identify potential risks and develop contingency plans to mitigate them. For example, if a certain task is expected to exceed the allocated budget, the project manager can take proactive measures to address the issue, such as renegotiating contracts or reallocating resources. This helps in minimizing financial risks and ensuring that the project stays on track.

Accurate Forecasts

Cost management tools provide project managers with a systematic approach to estimating and tracking project costs, allowing for more precise predictions of future expenses. By analyzing historical data, current spending patterns, and other relevant factors, cost management tools can help project managers anticipate potential cost overruns and make informed decisions to mitigate risks. With accurate cost forecasts, project managers can communicate effectively with stakeholders, ensuring transparency and trust throughout the project lifecycle.

Improves Visibility

By utilizing cost management tools, project managers can easily track the costs associated with a project and provide clear and concise reports for stakeholders. This increased visibility allows stakeholders to have a better understanding of the project's financial status and progress, enabling them to make informed decisions and provide valuable input.

Better Project Documentation

Cost management tools enable project managers to track and record all financial aspects of the project, including budgeting, expenses, and cost allocations. By maintaining accurate and detailed documentation, projects are easier to hand over to stakeholders once they are completed. The comprehensive documentation provides a clear overview of the project's financial status, making it simpler for stakeholders to understand and take over the project without any confusion or delays.

Types Of Cost Management Tools

Cost management is a crucial aspect of any business, and there are several tools available to help organizations effectively manage their costs. One of the most fundamental cost management tools is budgeting. 

Budgeting involves creating a financial plan that outlines expected revenues and expenses. By creating a budget, businesses can allocate resources efficiently and make informed spending decisions. 

Another essential cost management tool is time tracking. By accurately tracking the time spent on various tasks and projects, businesses can gain insights into where their resources are being utilized and identify areas where costs can be reduced. 

Reporting is another type of cost management tool. It enables businesses to monitor and analyze their costs.

Lastly, analytics tools allow businesses to visualize and interpret data related to costs, helping them identify patterns and trends that can inform cost management strategies. These tools provide valuable insights into the financial health of the organization and enable businesses to make informed decisions to maximize their resources. 

The combination of budgeting, time tracking, reporting, and analytics tools significantly enhances cost management efforts for businesses in any industry.

Project Documents For Effective Cost Management

Creative Brief

Defining your project’s scope and key objective are the first steps toward creating a suitable budget, and solid creative briefs help you do that. By clarifying your strategies, you can be sure that you’re directing your resources on the things that will get you closer to meeting your project’s goals.

Baseline Project Budget and Spending Guidelines

Your project budget is the anticipated costs you’ll need to implement your project plan and meet your objectives. To create this, it’s helpful to look into projects you’ve worked on in the past and to use a reliable template while aligning yourself with the current costs of relevant goods and services in the marketplace. It’s also advisable to establish guidelines so that you can know how much you can spend on any given aspect of your project.

Work Breakdown Structure

Organizing your team’s work into manageable sections with a work breakdown structure (WBS) can help you track project budgets accurately because it gives you better clarity on how manpower resources need to be allocated. Each task involved in a project typically comes at a cost. Being able to identify individual tasks that need to be completed can provide project managers with more insight on how to optimize workflows and resources.

Resource Plan

Several resources need to be managed in projects, such as labor, materials, and equipment. A resource plan allows you to make detailed budget plans; the more detailed your budget plan is, the easier it will be to stay on top of. Preparing a resource plan is a good way to anticipate and avoid cost overrun, for better project profitability.

Project Dashboard

Consolidating relevant information in a project dashboard in a project management software can help project managers see how their projects are performing relative to their budgets at any point. This can help detect the need to make adjustments at crucial times to avoid putting out fires at the last minute.

Timesheets

Implement effective time-tracking methods like integrating schedules and timesheets through project budget management software. Enabling your team to easily capture even the smallest of time spent on a task will help you monitor where efforts and energies are being allocated, and course correct on time in case it’s needed.

Best Practices For Cost Management

Plan For Cost Thresholds

When you have a clear idea of how much money should be spent on what, the next step is to create a cost threshold for each resource category. If, for example, it was decided that $1000 could be spent on the design aspect of a brochure, the cost threshold should be somewhat below $1000. Then, if this number is reached before the project is complete, action should be taken to regain control of the budget. Planning your cost threshold beforehand reduces the need for last-minute evaluations and overspending.

Allocate Cost Control Roles

Put someone specifically in charge of overseeing the project budget. This ensures that there is someone frequently checking that the project is staying within budget and that employees know who to turn to if they run into budget-related issues.

Under-Promise and Over-Deliver

Besides being a fabulous technique for gaining client trust and likeability, under-promising and over-delivering on project scope puts you ahead of the budgeting game. If you have your budget worked out so that you can afford a little more than what your client is expecting, rather than promising exactly what you can afford, you’ll have some leeway in the project expenses. And in case you do run into budget trouble, you can always fall back on delivering less to your client–they’ll never know that you had under-promised and were actually planning to deliver more!

Manage Scope Creeps with Change Orders

Scope creep can put you over budget because it pushes you to spend for resources that neither you nor your key stakeholders didn’t anticipate. Cover any unexpected costs that result from a shift in the client’s expectations with a change order. Once approved by the client, the additional funding should cover the costs of the extra work.

Consider Inflation and Secure Contingencies

When planning a project, think about potential scenarios that could disrupt the budget plan. Inflation, for example, is a common cause of budget overrun, especially for extensive projects that take some time. Other things that could throw your project budget off balance include world events, weather changes, and natural disasters. Plan for these and plan how you will adjust your budget accordingly.

Update Stakeholders with Status Reports

Run reports showing your performance and share them with your team and clients. Discuss reasons for variances between budgeted amounts and actuals to help foster accountability all around. 

Project management software like Workamajig comes with cost management features. This allows you to keep track of your costs in the same place where you keep track of your project, streamlining the process of cost management massively. If you have all your project and cost management information in one platform,  you’ll be able to run reports easily and show them to teams and clients through the same software.

Wrapping Up

Completing your project within budget is essential for ensuring profitability. In this day and age, it’s easy for agencies to stay on top of their budget if they use project cost management software. On the other hand, agencies that have not yet integrated project management budgeting tools can easily slip over budget, and are often none the wiser when they have done so!

Workamajig is a project management software with budgeting tools included. At Workamajig, we believe in helping agencies not only stay within budget but using our all–inclusive project management software, see every project to maximum success. Request a demo today!