Management Has to Do With the Knowledge Essay

Excerpt from Essay :

management has to do with the knowledge of the resources a company uses in running their daily affairs. It also involves effective projection of additional resources that could be needed along the way, and the maximization of the available resources. Maximizing the efficiency of the available resources and the ability to put some of them in reserve are part of Cost Management. Some scholars define cost management as the of cost setting up systems of accounting and models for the provision of guidance in relation to current and future operations in order to achieve specified objectives. They also believe that analyzing and interpreting cost information is vital and aids the processes of decision making. Basically, between a client and a contractor, cost management refers to the final cost of a construction project (Dubois, 2003).

The major reason for the analysis of cost management is to find a more effective final cost in a construction project. Experts have explained that the analysis of cost management is greatly needed for there to be a reliable budget. Usually, the most critically analyzed set of values attracts the clients more. Apart from the overall cost, the team of designers need to present measures of controlling cost even as the overall aim is maintained, in terms of providing quality building when due. The major focus of cost management should centre on the evaluation of several techniques to deliver quality services and products at lower costs. Researchers believe that a construction project manager owes the client the duty of managing cost, and this broadens the scope of cost management. Cost management in a project encompasses the prediction and reporting of cost variables to the client, and helping him to analyze and control expenditure while maintaining quality in the project (Dubois, 2003).

Specialists in the field have outlined the essence and importance of cost management as follows:

To minimize cases of rework in construction projects

Minimizing customer complaints

Reduction in the use of resources

Increase in profit for the contractor (Dubois, 2003).

Principles of Cost Management

Cost Management involves the planning, making estimates, budgeting, and taking measures to control the cost of completing a project within a specified budget. This aspect of management has three main principles:

Estimation of Cost: this has to do with the projection of the approximate cost of the resources that would be needed to successfully complete a project.

Budgeting of the Cost: gathering the cost estimations of the individual deliverables within the project in order to have the total cost.

Cost Control: this involves exertion of expert influence on the factors which affect cost differences, and also controlling the changes that could appear in the budget of a project (Dubois, 2003).

These principles are intertwined and they interact also with all the other area of project management. Each project management process may involve the efforts of one or more members or a group of persons in the project depending on what the needs of the projects are. If the project has different phases, each process of project management occurs not less than once in every phases. Though the processes appear here as distinct elements having defined boundaries, they are, in reality, intertwined, overlapping in ways that details may not be able to capture (Cokins, 2001).

Types of Estimates and Methods for Their Preparation

The estimation of the cost of managing a project has to do with the development of the approximate costs of the resources that will go into the completion of every scheduled activity within the project. The estimator needs to consider the factors responsible for cost variations, without ignoring risks (Cokins, 2001).

The process of estimating cost looks at the budget in relation to offsetting additional costs that may arise. Cost estimations are always expressed in currency units (euro, dollars, pounds, and so on) so as to be able to draw comparisons within and across multiple projects. However, other measurement units, like staff hours and work days, can be used in the analysis of cost in order to ensure effective managerial control (Cokins, 2001).

The accuracy of an estimate in a project increases with the progression of activities. The costs for deliverables are estimated also to account for all the resources that will go into the project. And this includes, among other things, materials, facilities, services, labor, and equipment, without sidelining important categories like inflation allowance and contingency cost. The cost estimate of a deliverable quantitatively assesses the presumable cost of the resources needed to successfully complete that scheduled activity (Cokins, 2001).

Techniques and Tools

Top-Down Model of Estimation (Analogous Estimating)

Analogous Estimating is a Top-down model of estimation. With this technique, the project duration is determined. It considers and compares previous and current projects to determine the length of time it will take to complete the current one. The project duration is not manifest at the early stages of the project when this estimation is usually made (Daft, 2001).

Bottom-Up Estimation Model

This technique is capable of producing a more effective estimate for each phase of the project. Here, each phase is broken up into deliverables. Estimations are made based on these. There are initial estimations of smaller portions of the work which are then gathered to provide the estimate for the entire project. In this case, estimates of single work units are considered rather than giving an estimation of the cost of an entire project. Accuracy is higher when the scope of the estimation is smaller (Daft, 2001).

Parametric Estimating

The parametric technique considers the relationship between variables and the data provided. It is also accurate since it focuses on the resources needed for a single unit of activity. It takes into account the nature of the project, in terms of whether it is simple or complex (Daft, 2001).

Reserve Analysis

Reserve analysis is used to analyze concurrent projects. It looks at the entire features of the project, and also determines the relationship between them. Reserve analysis allows for the establishment of scheduled duration, cost estimation and the final budget (Daft, 2001).

Activity Cost Estimates

Activity cost estimate is used to stipulate the cost of all the resources that are required to complete units of scheduled activities. This method takes into account the costs for materials, labor, facilities, services, and equipments, in addition to information technology and contingency reserve costs.

There should be a synergy between the variables and the cost estimate documentations. The documented activity cost estimate needs to include:

1. The scope of work for the project

2. Explanation of the basis on which estimates were drawn, and possible constraints (Daft, 2001).

Project Management Software

There is cost estimation software for project management. The software with the tools therein facilitates cost estimating techniques. Let's consider the different alternatives to cost estimate (Daft, 2001).

Cost Budgeting

Cost budgeting gathers the total estimations of all the activities scheduled in the project deliverables. It is used to establish the baseline of the cost in order to measure the performance of the project (Daft, 2001).

Time-Phased Budget

Once the WBS and a schedule are available, the time-phased budget can be developed. And this contains details of when a budget should be spent and what is to be accomplished at every level of expenditure. This kind of budget is also referred to as the earned value plan (Daft, 2001).

Having done all these, the data needed to create the initial budget would be available. Every WBS item is assigned a cost. From the staffing plan, affix human resources to each of the tasks. With a spreadsheet or a project management tool, you would be able to calculate the cost for labor. With the available labor rates for each category of job, you could multiply the number of hours each of the human resources is expected to work. You may need to add the cost for miscellaneous items (Daft, 2001).

When you get to compare the actual money spent and the actual WBS items completed against the planned budget and work schedule, you would have an idea of the progress of your project. If the planned budget for a particular WBS item has been exhausted while work still remains, that is a clear indication of a problem on the budget. With the time-phased budget, various variables can be used to determine the health of a budget. And these variables should be monitored monthly (Daft, 2001).

Processes Involved in the Cost Budget of an Information Technology Project

The benefits of developing an effective cost budgeting and cost estimate plan are threefold. First, the budget presents a concise documentation of the project. Through adequate planning, issues that would have been overlooked or neglected are taken into consideration without which problems may erupt in the process of project execution. The final benefit is that good planning instills confidence and paves way for success. Experts maintain that project planning is never a waste of time since the time allocated to a project during the planning stage and the actual completion time are usually not…

Sources Used in Document:


Ansari, S., Swenson, D., Bell, J. And Kim, W. (2003): Best Practice in Target Costing. Management Accounting Quarterly, Winter 2003, Vol.4, No.2, pp.12-17.

Baker, W. (2002): Eliminate Non-Value-Added Costs. Industrial Management, May/June 2002, Vol.44, Issue 3, pp.22-27.

Carr, D. And Smith R. (2000): Change Management. In: Brinker, B. (ed.): Guide To Cost Management. John Wiley & Sons, Inc. New York, pp.128-143.

Cokins, G. (2001): Activity-Based Cost Management: An Executive's Guide. John Wiley & Sons, New York.

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