Do you have a dedicated project cost management plan in place?
Hey, we won’t judge you if you don’t.
That said, better budgeting should be a top priority for any agency today.
This is especially true in an era where only 43% of project managers actually complete projects on time or within budget.
As an agency, it’s natural to get overambitious in an attempt to please your clients. Unfortunately, this often results in project overrun, unsustainable schedules, and blown-out budgets.
That’s where your project cost management process can be a game-changer.
In this guide, we’ll highlight how to create and execute a project cost management plan from zero.
What is project cost management anyway?
Project cost management (PCM) is the process of predicting and ultimately controlling the budget of a project from start to finish.
This process not only requires project managers to make thoughtful cost estimations during the planning phase but also identify opportunities to intervene if a project is at risk of overrun or overspending.
The 5 phases of project cost management
Planning: conducting research to determine resources needed for a project.
Estimation: getting an idea of the cost of the resources above based on project scope.
Budgeting: finalizing cost based on resources, billable time, and available funds.
Cost control: actively keeping the project within budget once it’s in progress.
Review: assessing whether the project was on time/budget (and why or why not).
The end goal of this process is pretty straightforward: keep costs down without sacrificing your team’s schedule or the quality of your project. Doing so requires you to be proactive and likewise understand the ins and outs of your project before digging in.
And surprise, surprise — project managers are the ones responsible for cost management for any given agency.
Why project cost management matters (and why you can’t afford to wing it)
Chances are you’re already doing some form of the process above, right?
That said, you can’t afford to ignore the importance of your cost-controlling measures.
Food for thought: a 2020 Wellington report found approximately half of project managers don’t have the ability to track KPIs related to their projects in real-time. That means few-to-no opportunities to intervene or understand that your project’s budget is ballooning out of control before it’s too late.
The upsides of having a dedicated project cost management plan (and tools to help you take action) can’t be overstated. Below are the key benefits of investing in PCM:
Stay within (or under) your stated budget
No surprises here. You obviously want your forecasts to be as accurate as possible to keep costs down. Coupled with risk assessment, spending alerts, and real-time project analysis, you can likewise nip any would-be spending snafus in the bud.
Reduce runaway project schedules
Excessive project overrun is a recipe for out-of-control spending and burnt-out teammates. Not only that but missed deadlines likewise mean unhappy clients and potentially hurt your agency’s reputation. With a dedicated PCM strategy, you’re encouraged to keep a closer eye on your project timeline (or lack thereof) to prevent scheduling issues.
Eliminate scope creep
Remember that defining the scope of your project matters for both your teammates’ sanity and keeping costs down. Consider that tying your colleagues to a never-ending project is a drag on their productivity. Meanwhile, ongoing billable hours from freelancers and contractors can drain your budget in no time.
Plan for risks before they have a chance to snowball
Again, comprehensive planning and cost management makes it easier to anticipate and handle “what-if” scenarios when they arise. Fewer hiccups mean less time and money spent making corrections.
Better planning for the future
If nothing else, being more vigilant about project costs now makes it easier to forecast, avoid risks, and come up with realistic budgets in the future. This speaks to the importance of documenting your project costs step-by-step and role-by-role.
And hey, that actually leads us to our next point!
5-point project cost management process (and how to make it work)
Now that we’ve hammered home the benefits of PCM, let’s break down the process in action.
Below are the five key steps of project cost management, including must-do tasks and tips for controlling your budget.
Oh, and we’ll also highlight some key features in Teamwork (such as profitability reporting) that can do a ton of the heavy lifting as you implement your plan.
1. Planning (before we worry about money, what exactly are we doing?)
The initial stages of a project actually kick off the cost management process. Here you’ll concern yourself with the big-picture of your project and budget before delving into specifics.
Perform initial research and resource planning around your project
Outline budgeting and scheduling risks
Conduct a basic cost benefit analysis to justify your spending
For example, let’s say you’re tasked with overseeing a rebrand. At a high level, what deliverables go along with the project? Is it a refresh or a full rebrand? Which roles might be involved (both internal and external)?
At this point, you’ll also brainstorm potential roadblocks related to your project. For example, how do you avoid needless revisions or underwhelming deliverables?
2. Estimation (what do we need and will it cost?)
We get it: cost estimation can be tedious and time-consuming.
But understandably so.
You quite literally can’t afford to treat estimations like a guessing game. Getting in-depth and granular with your estimations might require some initial legwork, but doing so is worth it for the sake of project cost management.
Assess resource costs (people, tech, and so on) associated with your project
Map out your project timeline (including your desired start and end-dates)
Define the scope of your project in terms of tasks and deliverables
Let’s keep going with the rebrand scenario.
At this point, you realize you’re going to need to hire multiple copywriters, graphic designers, and marketing consultants to make the project a reality. What’s it going to cost you?
Based on firsthand data from Frontify, a rebrand can vary from $30,000 to $250,000. It can also take anywhere from a few weeks to nearly a year depending on factors such as your company size, resources, and deliverables. This highlights the importance of the estimation phase for maintaining realistic expectations in terms of what you’ll need to spend.
3. Budget (how much can we really spend to get what we need?)
Here’s where you’re actually going to tie a dollar amount to your project. If you’ve done your homework up to this point, you should be able to budget with confidence.
Figure out your budget limitations based on stakeholders and resources.
Anticipate direct and indirect costs and estimated billable time for your project
If possible, analyze past project or campaign data to keep your budget realistic
Another scenario: your agency is tasked with mapping out a content marketing push. You have your list of bloggers, SEO, and ad experts tied to the project.
Now you’re going to need to understand how much they charge, how they bill (think: flat-rate versus hourly), and how that billable time contributes to the project. You’ll also want to review direct costs (such as necessary software and internal personnel) and indirect costs (think: admin costs) that could impact your budget.
You can use Teamwork to help you keep track of your billable time and money spent on any given resource or teammate working on a project. The Profitability Report helps you do just that, but with a holestic view of your project's profits.
4. Control (how do we keep spending on target and the project on time?)
Again, project cost management is anything but a passive process.
By keeping a close eye on your progress and reflecting on the risks and roadblocks you anticipated in the planning phase, you can hone in on potential problems.
Regularly check in with stakeholders, participants, and collaborates
Conduct intermittent forecasts and run reports to see if your project is on target
Track the working progress of individuals and teams to assess remaining resources
From hitting the pause button on a project to asking questions of stakeholders and collaborators, there is no one-size-fits-all approach to control. Ideally, you should try to find a balance between staying in the loop without worrying about micromanaging your teammates.
This is yet again where Teamwork is super useful. Built-in features such as alerts and notifications let you know if something is suddenly eating away at your budget without your knowledge.
5. Review (did our project cost management plan actually pan out?)
Finally, you’ll need to assess whether your PCM strategy actually worked.
Evaluate time spent on tasks related to the project (big-picture and individual)
Break down profits versus losses
Reflect on takeaways (what went right, what went wrong, and where to improve)
Figuring out all of the above requires reporting and analytics rather than gut feelings or assumptions.
With a tool like Teamwork, you can analyze just about every corner of your project including time contributed, profits and losses, and how much money was spent on any given task.
What does your project cost management plan look like?
PCM represents a balancing act that’s crucial for the success of your projects at large.
Meeting deadlines. Doing quality work. Staying within budget.
We’ll bite: juggling all of the above can be a challenge. That said, doing so is crucial to the growth of your agency.
The good news is that there are plenty of tools out there to streamline and automate the processes of planning, budgeting, and controlling costs.
With Teamwork, you can keep a better pulse on your team’s project via powerful communication tools and in-depth analytics.