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| ? Cost Management – Do you mind |
It starts with..
Do you want a good start? First try to separate need from desire. They have different approaches when you have to decide whether or not you will spend money on something. We all know, or we should, that it is not a good idea to spend more money than we get. You can withstand this situation for a period but after you, could be the company too, burn all reserves things will change, that mean trouble.
It doesn’t matter here if we are talking about personal, family or corporate budget; we need reserves, contingency and management reserves, for the unpredictable. I remember my grandpa saying “try to save one third of your gains monthly, minimum 20%.” It is a lesson that should be given to everyone preferably when we are very young. That is why allowance, the money parents give their sons, is good practice.
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What is a Cost Management Process?
Cost management is concerned with the process of planning and controlling the budget of a project or business from the initial planning phase to the project completion. It includes activities such as planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget. Did you notice the “approved budget” above? The money for the project comes from the sponsor, government, company existing funds, partner, … in all cases a business plan was approved based on a budget therefore it must be followed. If for some reason the approved budget cannot be respected a change proposal in the baselines shall be submitted to the appropriate stakeholders.
Basically what is needed to manage cost in a project can be summarized in 4 processes:
- Planning costs
- Estimate costs
-Determine budget
- Control costs
Make it easier
An issue that must be clear is the way we deal with the company’s money. There are rules and procedures to manage this for business trip, daily expenses and etc. The way I see to make it easier and keep you free of troubles? Follow the company procedures and spend its money exactly the way you do with your own money, do not waste it, that simple.
Is it a “stand alone” process?
For sure it is not. Among others and to be very narrow I would say it is totally connected with the Time and Risk process. It is not only the amount you going to spend or invest but when throughout the project you will put the money there and the risks you are willing to take. Risks if not foreseen, not captured or not managed can change to fact and depending on the severity and impact it will destroy the planned budget and the project.
Cost Types
Direct Cost - is related to producing a good or service. A direct cost is the material, labor, expense, or distribution cost associated with producing a product. It can be accurately and easily traced to a product, department or project. Indirect cost - is an expense unrelated to producing a good or service. An indirect cost cannot be easily traced to a product, department, activity or project. Fixed cost- is also associated with cost accounting. A fixed cost does not vary with the number of goods or services a company produces. For example a machine leasing for production for two years. Variable cost - fluctuates as the level of production output changes. This type of cost varies depending on the number of products a company produces. A variable cost increases as the production volume increases, and it falls as the production volume decreases.
Total Costs (TC) – Fixed + Variable Costs Marginal Costs – Marginal cost is the cost of producing an extra unit. Opportunity Cost – Opportunity cost is the cost of the alternative not chosen. Sunk Costs - are costs that have been incurred and cannot be recouped. Sunk costs are those that have been incurred in a project, but have not produced value towards the project’s objectives. For example, if you are making a cup of tea and spill the milk that was to be used in the tea, then the value of the milk is your sunk costs.
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Cost of changes
Now comes a easy question, if it is not easy for you be worried. When a change has less impact? Not only on budget but also in time and quality. For sure the more premature, earlier in the project, is the change the less impact it will cause. Do not be surprised with the ratio of 10, ten times more costly, comparing a change performed in the current phase to the one in the next project phase.
For example, if you need to change a requirement during the initiating phase is on the order of $1, during planning is on the order of $10, during executing is on the order of $100 and after the closing phase it is on the order of $1,000. This is the reason why it is so important to spend and invest time, money and resources to capture risks in the project beginning.
Tools
There are many tolls to control costs, from standard ones to software. The important thing here is to know and understand first the basis, and the basis is related to some “Terms to know”: PV – planned value/ EV- earned value / AC – actual costs / BAC – budget at completion / EAC – estimate at completion / ETC – estimate to complete / VAC – variance at completion
Conclusion
Cost management is a key issue to the project success. If it is a project need spend what is necessary, not more, to do not gold plating it. If it is a desire do not spend a dollar on it. Still in doubt? Inspire yourself on the guy bellow.
The Author: Alexandre Barandier
About:
Engineering Manager at SAAB
Engineering and Project Manager with a result driven profile. Demonstrated experience leading complex and integrated Product Development and Customer Support. Deep understanding of business key drivers. Skilled in team building, suppliers management and integration between internal and external customers to deliver results of excellence to the company. Interpersonal, leadership and negotiations skills to coordinate high performance teams.
Qualifications:
- Project management
- Forward-planning and strategy
- Skilled in Lean manufacturing and Kaizen
- People development and management
- Suppliers procurement and management
- Contracts management and commercial negotiations
- PMP knowledge and PMI member (scope, risks, schedule, costs, stakeholders, …)
- Experience in business with foreign customers in EUA and Europe
- Experience in perform qualification and certification tests
- Agile and Scrum methodology
- Stress analysis oriented
- Certification processes experience with certification authorities Coordination
- Product sustaining and customer support
- Evaluation of customers requests and claims
Technical background in Stress Analysis:
- Static, Fatigue and Damage Tolerance analysis
- Movable surfaces
- Mechanism
Professional Experience, 16 years:
- Airframe
- Landing gear
- Cabin doors, ramp and cargo doors
- Actuators and integrated system
- 10 years of experience at Embraer aerospace industry as project manager and engineering manager worked in the company's biggest developments.
- 6 years of experience as Stress engineer at Embraer aerospace industry in product development and customer support.
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