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cost management
Cost Management
Project Budget
The primary tool for cost management is the budget, which is developed using the best available information for each expected expense. The budget is used as a financial tool in determining project feasibility, and as an accounting tool for project management. During a project, expected costs are assembled to construct a budget and actual expenses are tracked and compared to budgeted amounts. Accurate initial budgeting and a plan to respond to budget deviations are essential in managing a project.
Project costs vary based on the size and complexity of the project, the chosen equipment, and the project site, among other factors. (These variations make it difficult to generalize costs. The sample budget is intended to convey the essential elements of a project, not to give exact costs for any particular project. The sample budget also expresses costs as a rough percentage of total project costs, for reference.) Developing a good budget will require considerable research and consultation with experts and vendors. Inevitably, the budget will be revised as estimated costs are confirmed, problems arise, and new information is received. It is critical, however, to have a reasonably certain expense budget and schedule established for project financing.
Cash Needs—Expense Estimate per Project Phase
The following estimates of costs incurred during each phase of a project allow project coordinators to plan cash needed during project development. Some expenses, most notably those for project management, occur throughout more than one phase of the project.
Project Phase
|
Typical Expense Percentage |
|
Feasibility and Conception |
1–2% |
|
Project Design |
2–5% |
|
Pre-construction |
3–7% |
|
Construction |
70–90% |
|
Operations & Maintenance |
4–5% |
Early in the process it is difficult to obtain outside financial resources due to the high risk that the project will not be completed. As a result, the project coordinator often supplies the capital and in-kind support for early work on the project such as research, grant writing, and outreach to the community. Sources of capital used for development work, construction work, and operations and maintenance will depend on the financial structure of the project. The financial structure will determine who owns the rights to the project and who carries the risks at various stages.
