What Is Project Cost Management?

Project cost management (project cost management). The contractor performs management tasks such as forecasting, planning, control, adjustment, accounting, analysis, and assessment in order to keep project costs within planned goals.

Project cost management

(Cost management work)

Comprehensive project

Project cost management consists of processes that are necessary to complete a project under budget.

1 Resource planning process-decide what resources (people, equipment, materials) are needed to complete the activities of the project and the amount of each resource required.

2 Cost estimation process--Estimating the approximate cost of each resource required to complete each activity of the project.

3 Cost Budgeting Process-Allocate estimated total costs to specific tasks.

4 Cost control process-control changes in project budget.

The above four processes interact and interact with each other and sometimes with external processes. According to the specific conditions of the project, each process is completed by one person or several people or groups. At each stage of the project, the above processes occur at least once. .

The above processes are stated separately and have clear boundaries. In fact, these processes may be reselected and interact.

Project cost management is mainly related to the cost of resources required to complete activities. However, project cost management also considers the impact of decisions on the cost of using the project's products. For example: reducing the number of design solutions can reduce the cost of the product, but it increases the cost of using the customer in the future. This broad project cost is called the project life cycle cost.

In many application areas, forecasting and analysis of future financial conditions are performed outside of project cost management. However, in some cases, the content of forecasting and analysis is also included in the area of cost management. At this time, techniques such as investment income, time-valued cash flow, and payback period must be used.

Project cost management should also consider the needs of project stakeholders for project information-different parties measure project costs at different times and in different ways.

When project cost control is linked to rewards, controllable and uncontrollable costs should be estimated and budgeted separately to ensure that rewards truly reflect performance.

Project cost management should follow the following procedures:

1 Grasp the market prices and changes of production factors.

2 OK

Budget-based target cost control method

Among domestic enterprises, few companies adopt strict budget management. Although some enterprise managers understand the benefits of budget management from various channels, every year at the end, they always ask the finance department, or the sales department, or a department such as the "general manager" to do one for the coming year. Share budget. However, as everyone knows how to make a budget, the company usually does not accumulate the various data required for budgeting, and the corresponding organizational environment required for budgeting, plus the time is very urgent (usually they will ask relevant personnel to Completed within -7 days) and other reasons, the budget they made is actually a budget plan for the coming year after the budgeter came up with his intentions. And the people who do this plan usually know that this money-spending plan is just a one-off plan that meets the current requirements of the boss. In most companies, few people think that the budget will be useful, not that the budget is theoretically useless, but that it is not useful in their business.

It is generally believed that "the plan is not changing fast." "Plans don't change fast", this is a sentence that can be understood in various ways. One understanding is that the boss himself will not execute according to the budget he requested, and no matter how good the budget is, it is useless. One understanding is that our company simply cannot make a practical and effective budget. Another understanding is that interpersonal relationships are too complicated and there are too many heads of household. Even if the boss insists on following the budget, a character may destroy him on that day. There may be another explanation: environmental factors are changing too fast and there are too many variables in the development of the enterprise. It is impossible to predict what will happen in the next two or three months. Therefore, if the budget cannot be achieved, it will not be practical.

However, the experience of successful foreign companies shows that budget management is an effective cost control method. The so-called budget is, in plain terms, how much money will be spent tomorrow? Where to spend money? Who will spend the money? How to spend money Who controls the money spent? To answer these questions, you need to be not only confident about the whole picture, but also to know where the funds will come from (and to ensure that the funds will be available), as well as to know the future price trends of various things that need to be purchased. Because you spend your money as planned, naturally you don't spend money indiscriminately or spend money unjustly. Why not spend money according to the plan beforehand? This is because plans are usually discussed and negotiated in advance with the joint participation of various departments.

Of course, just as there is nothing absolutely good in the world. Budget-based target cost control method. It is not 100% easy to use, because there are always some things that cannot be predicted. However, this does not deny the ineffectiveness of budget management. Once the budget is implemented, it is not a monolithic one, and appropriate adjustments can be made when necessary. The most important thing is that budget management is better than no budget management.

Target cost control method based on benchmarking

The so-called benchmark is a model, that is, others do better than themselves in some aspects, so they have to use others as models, even better than others, or that others have achieved that effect, so I also ask myself to achieve Even more than that effect.

"Other" here has three meanings:

For one, it can be another business. When an enterprise achieves a certain degree of goodness in some aspects, a group of companies usually follow suit. For example, the A car factory uses a new process to reduce its production cost per car. 1%, so many auto manufacturers have also adopted this process. For another example, a company's per capita contribution rate reached a certain level, so a company began to study how it reached that level. When the company was convinced that it found the answer, it took that company as the target and took measures ( (It may not be exactly the same as that company's approach) trying to achieve the same per capita contribution rate, or even higher. Taking other companies as benchmarks, there are three main ways to learn: First, through a certain medium (television, newspapers, periodicals, books, Internet, management consultants) to know that a certain company is better than oneself in one or several aspects OK, so I decided to learn it. The second is to visit the company to study or to be introduced in person by the company's personnel, so they are determined to learn it. The third is that people who worked in that company brought the experience of that company and promoted it in their own company.

Second, take certain past performance of your own company as the standard to control as your future goal. For example, in the history of the company, the highest per capita profit contribution was 50,000 yuan, or the sales expense ratio was only 8%, so it was determined to control it in the next year. This is basically consistent with the target cost control method based on historical data.

The third is to set a certain record created by a certain department or person of this enterprise as the target, and it will be used as a benchmark by other departments or others, and strive to surpass him. For example, a department has created a record of office supplies cost per capita of no more than 10 yuan for three consecutive months. After analysis, it is believed that other departments throughout the company can achieve this effect if they strive to control the use of office supplies. Mandatory implementation of the plan to reduce the cost of supplies based on the results of that department. For another example, a piece-worker created a high production record that month, and the company called others to learn from him, which is also a benchmark management method.

Target cost control method based on market demand

Target control method based on market demand (I sometimes call it "cost control method based on the will of the decision-making layer", because the will of the decision-maker will play a leading role in the use of this method). The following is a typical operation case of target cost control method based on market demand.

A company plans to develop and produce a new product, A-type coating. After technical research, the company's technical personnel finally developed the formula of this coating. Production of this coating requires four raw materials: clear lead powder, black lead powder, clay and syrup. Their proportions are: 35%, 45%, 14% and 6%. The company found through market survey that this type of coating has a competitive market price of $ 0.50 / kg, and the target gross profit determined by the company after the product varieties are put on the market is $ 0.25 / kg. In this way, the target cost of Type A coating is $ 0.25 / kg ($ 0.50 / kg-$ 0.25 / kg). However, the company learned through market surveys that the costs of the above four raw materials were $ 0.45 / kg, $ 0.18 kg, $ 0.15 / kg, and $ 1.00 / kg, respectively. According to this, the cost of Type A coating is: 0.45 × 35% + 0.18 × 45% + 0.05 × 14% + 1 × 6% = 0.31 USD / kg. In other words, although this design solution is technically feasible, its cost does not meet the target cost requirement. In order to achieve the set target cost, the company's scientific and technological personnel decided to re-examine the existing formula of the Type A coating to adjust the cost in order to achieve the cost target. By applying the principle of value engineering, they found that the high temperature resistance of Type A coating was excessive, while the suspension stability was slightly insufficient. To this end, the scientific and technological personnel decided to improve the formula on the premise of ensuring the necessary functions of the type A coating. The new formula uses only three types of raw materials: clear lead powder, black lead powder and bentonite. Their proportions are 15%, 80% and 5% respectively, while the cost of bentonite is only $ 0.09 / kg. The cost of this new type A coating formulation is: 0.45 × 15% + 0.18 × 80% + 0.09 × 5% = 0.27 USD / kg. The cost of the new formulation meets the requirements of the target cost and can be officially put into production.

This method has been adopted by many enterprises, that is, it has proven to be a very effective means of controlling costs. Initially, this method may have been created by a company's helplessness. However, in an industry where competition is not fierce, the implementation of this method can still achieve strange management effects. Human potential is unlimited, sometimes seemingly unachievable goals. If there is a powerful person who must let people reach it, sometimes it can really be achieved. Many companies often don't know whether there is room for cost reduction in their own companies. In this way, sometimes all the water in the sponge can be wrung out.

Cost control method based on value analysis

This method is used by some large companies in the excellent manufacturing industry. These companies often have a dedicated department responsible for "reducing costs." They analyze existing work, issues, materials, processes, and standards. By analyzing their value and finding corresponding alternatives, they can reduce costs accordingly. For example, after careful analysis of the cost management personnel of an enterprise, it was found that outsourcing the cleaning work within the company to a professional cleaning company outside the company was lower than the cost of raising cleaners by the company itself, so they proposed a proposal, and the company's leaders thought it was okay. So the company's cleaning work was entrusted to a professional cleaning company.

This method is often used in advanced companies and institutionalized, that is, the company has dedicated personnel (usually engineers) to take this job responsibility. However, almost all companies seem to use this method more or less, but they are not doing it professionally. Specific analysis will find two situations: First, the value analysis performed by some companies is actually learning from the experience of other companies. For example, when I heard or saw that an enterprise outsourced cleaning work, it reduced cleaning and management costs, so it also took outsourcing management methods. This is actually the process and result of using benchmarking, not independent value analysis. Second, some companies often conduct value analysis on certain jobs, events, businesses, processes, etc., and sometimes may find a good alternative, and the effect of the implementation is indeed ideal. However, the process of this value analysis is more because of the behavior of some important people when they are whim.

Experience-based cost management method

This is one of the most basic and lower-level, but it is most commonly used, and under certain conditions the effect is also a very good cost control method. The cost management of most enterprises starts from this, and the bottom part of every other cost control method is actually formed from this.

It is a process that managers use the past experience to control the management objects realistically, so as to pursue higher quality, efficiency and avoid or reduce waste. For example, experience tells us that in the procurement process, "buy three companies, repeatedly bid, and try to bargain as much as possible" can reduce procurement costs, so managers require their subordinates to "buy three companies, repeatedly bid, Bargaining. " For another example, experience has warned us that in the process of external procurement, if there is no necessary monitoring mechanism, some procurement personnel may have selfish behaviors, which will lead to corporate losses. Therefore, a large number of companies often set up gates at the expense of efficiency and cost Prevent the selfish behavior of purchasers. For another example, people have noticed that as long as they pay close attention to their employees, their work efficiency will be improved accordingly. Therefore, enterprises generally attach great importance to the supervision of employee behavior.

There is no doubt that experience-based cost management methods are sometimes the most effective measures to improve efficiency, ensure quality and control costs. A manager who works from the most basic salesperson to the position of deputy general manager of marketing. The salesperson he manages generally has less chance to make mistakes that directly and deliberately damage the interests of the company. However, experience is sometimes unreliable. An enterprise general manager's past experience in managing staff with lower cultural levels tells him that strengthening penalties for erring employees may reduce staff errors and thereby reduce or avoid losses in the company. However, if the staff he manages has a higher cultural level, And all are only children, then his experience may not only be useless, but even go the other way.

Experience-based cost management methods sometimes do not work, generally for two reasons: First, experience has a serious personal color, and when the changing environmental problems exceed the scope of experience, experience may lose its effectiveness. The second is that experience is often "discussed on the matter", not the result of systematic thinking, so experience may have systemic negative consequences in the practical process, that is, they help control or even reduce costs for specific objects, but overall and In other words, they may not help control costs, and even cause systemic costs to rise. In addition, the implementation of empirical cost management may leave a historical shadow in the future.

Popular man-hour management in foreign countries can calculate man-hours into costs and reduce risks. Some software can be related to management. It can be used together with the punch card machine. It is web-based and can be used in languages of up to eight countries on the Internet.

Project cost management

Some project management software supports "top-down" project budgets and "bottom-up" project expenditures, real-time tracking of changes in project costs, and automatic reminders in the form of highlights for overspending; providing cost control functions, The cost of defining a project or individual item needs to be approved again within a certain range.

Some project management software provides the following functions to manage the budget and expenditure and tracking of the organization and the project at the same time: cost classification that considers consistency and flexibility, and is applicable to both the organization and the PMO:
(1) "Top-down" budget and "bottom-up" budget (2) Automatic summary and statistics of expenses of different organizations and PMOs (3) Work schedule and expense report management (4) Purchase order and requisition management ( 5) Invoice and payment management (6) Budget deviation monitoring and re-forecasting