This is because the business would need to use their extra funds to fund the extra costs. It will also make you less competitive in the market.
If the businesses costs increase it will mean they will have to pay more money for less supplies. This will affect their profit levels greatly. Furthermore, they may be forced to increase the selling price of their products.
This is because the business need to make more money and this is a way to do so. However this could affect their sales as customers may not want to buy from them and may go elsewhere. Lastly, they will need to control costs to prevent debt and bankruptcy. This is because the business may use up all their money on funding the overspending and it may lead them little money to provide a service. Therefore the business may end up having no money and may go bankrupt.
Or they could be in debt from getting loans. It can also be taken into use by users for determining if the project in question is financially viable or not. This mechanism also helps in enhancing the creditworthiness of an organization and also contributes to the prosperity, wellness, and economic stability of the overall industry.
Here we discuss the purpose of cost control, characteristics, and types along with examples and importance. And also discuss its tools, strategies, advantages, and disadvantages.
You can learn more about from the following articles —. Your email address will not be published. Save my name, email, and website in this browser for the next time I comment. Free Accounting Course. Find jobs. Company reviews. Find salaries. Upload your resume. Sign in. Career Development. What is cost control? The importance of cost control. Budgets help to stay on track: Cost control methods often involve setting a strict budget for a team to follow, which is helpful with staying on track during the project.
If the budget calls for a project to be completed by a certain time, employees may feel more compelled to complete the project by the budget's deadline. Keeps the project's cost from growing: Using cost control methods can help keep a project's cost from rapidly growing as the project progresses. Project members can consult a financial professional if they feel the budget doesn't cover enough costs needed for the project. Keeps the profitability high: Cost control methods allow for the revenue brought in from the projects to be higher than the cost of the project, which keeps the profitability high and increases a company's finances.
Factors of cost control. Cost of labor. Cost of materials. The actual cost. The project budget is a financial plan for all project expenditures cost. Success in project budget management depends on, amongst other things, the creation of a comprehensive, consistent, and reliable project budget. Some people want to use the term "accurate" in the above definition.
But, the word "accurate" has no place in the project management world. Reliable and consistent are the terms that should be used. By definition, the project budget cannot be accurate as it is an estimate.
The first process is Estimate Cost, which is often confused with the Determine Budget process. Both processes are normally preceded by a project management team planning process, which is executed as part of the Develop Project Management Plan. The Cost Management Plan outlines the processes involved in determining organizational cost categories, estimating, budgeting, and controlling cost, so that the project can be executed within the approved budget.
The Estimate Cost process is not only confused with Determine Budget but is also widely misunderstood. Many think that this process estimates the total cost of the project. But this is not correct, at least not directly. The Estimate Cost process estimates the cost for each of the work elements and records the basis of that cost.
That is as far as Estimate Cost goes! The second of the three processes in Project Cost Management is the Determine Budget process, which rolls work element cost upward, applies cost aggregation, applies project contingency, makes a cash flow estimate, and now you have a budget for the various levels of the WBS and the total project.
This level of detail allows a project manager PM to evaluate the budget performance of the project from the top down or from the bottom up. The drill down can be by the PM or in conjunction with the assigned team member. EVM can assist you in evaluating project budget performance what are you accomplishing for the funds you are expending and in calculating a Cost Performance Index CPI , which is a representation of the effectiveness of your spending.
EVM can calculate a Cost Variance CV , which is the difference between the value of the work completed and the amount of funds expended to accomplish that work. This will tell you the magnitude of the over- or under-run or if you are on budget. EVM can be applied down to the work element level if the appropriate level of detail exists. Variance analysis is another tool to help the PM understand why work elements are over- or under budget. Understanding why work elements are overrunning will assist the PM to develop solutions action plans to bring the project back within acceptable ranges.
Understanding why work elements are significantly under budget assist the PM in feeding this information forward to new project budget development. Regardless of experience, care, or execution effort, project budget variances will occur.
This is just a fact of the project world. While they cannot all be eliminated, they can be reduced for future projects. Some not many projects will finish very close to the budget. Using the techniques outlined here will reduce the number of projects in this category and reduce the size of the overruns.
The main purpose of project scheduling is to represent the plan to deliver the project scope over time. A project schedule, in its simplest form, could be a chart of work elements with associated schedule dates of when work elements and milestones usually the completion of a deliverable are planned to occur.
In addition to guiding the work, the project schedule is used to communicate to all stakeholders when certain work elements and project events are expected to be accomplished. The project schedule is also the tool that links the project elements of work to the resources needed to accomplish that work. This is the result of four previous processes plus the work of up to eight tools and techniques for the Develop Schedule process.
The project schedulling process includes:.
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