This blog will look at Project Cost Accounts. It is often said that Project Management is a series of breakdown structures:
- Work Breakdown Structures
- Cost Breakdown Structures – often called a Cost Account
- Organisation Breakdown Structures
The APM define managing project costs on their page here.
Cost Accounts are a development of the Responsibility Matrix. The Responsibility Matrix is a matrix of the project tasks (from the WBS) against the people in the project (from the OBS). It ensures that everybody knows what they are expected to deliver, by giving every task has an accountable task owner.
The Cost account takes this information further with estimates of work effort and other costs. Note that this is an estimate of work content in a task, and not the duration. Work and Duration are different things.
Building the Cost Account
The first thing to add are the generic pay-rates for the staff working on the project.
Then ask for estimates of the work content (the hours of effort) for every task, checking that this is a good estimate rather than a guess.
Then estimates of the other costs are required. These might be expenses, materials, or equipment.
The following video explains this process.
The benefit of creating a Project Cost Account is that you can see exactly where money is being spent on the project, by task and/or by resource.
Saving Money on the Project
The Cost Account is based on the tasks in the WBS. The WBS is based on meeting the functionality of the project. It is therefore very likely that the resulting total costs for the project exceed the allowed budget.
There are four main methods to save money on the project:
- Use cheaper labour (Internal or External)
- Finding cheaper materials or reducing expenses
- Working in another manner (Smarter not harder)
- Removing functionality
The following video describes this process.
Here is an example of a project cost account
Project Managers can use the cost account whilst monitoring the project. The Costs account can become three, the Estimates – the Actuals – and the Variances.
Along with Time and Functionality, Cost is one of the three elements of the Iron triangle of Project Management.