Effective Cost Management and its Performance Evaluation Strategy

Abstract

Considering the methods, techniques and modalities available to the professional project manager to forecast the actual project cost, the Project Cost Estimate is always calculated using cost estimation techniques. There is a need for the project manager to also model the associated risk with the project so as to enable him make cost provision for overall expenses over time that may result using Assessment method and it is calculated using Risk Analysis techniques. The project manager should periodically evaluate the project cost performance to enable him to mitigate any eventual problem and re-direct the project appropriately to avert any possible overspent and it is calculated via Cost Performance Index (CPI). This is a simple ratio of the actual committed cost to physical completion, when both are expressed in the same unit that is MONEY.  In this sense, if CPI > 1 then this is NOT desirable as it is actually costing the project more to complete a work package than what the project had planned for. On the other hand, CPI < 1, then it is GOOD as it is costing less than planned for to complete a work package. If the Sustained CPIs < 1, it will undershoot the expected cost at completion for the work package. Conversely, sustained CPIs > 1 will cause a budget overspend for the work package. In summary, projects overspend and overrun occur because they were not estimated correctly during the initiation and planning phase of the project. It is therefore recommended that for efficient and effective project management, all project estimates must consider risk analysis during cost and time estimation because project managers/teams and their Projects are considered to have failed when the project is over budget and it is delivered late (behind schedule).