Join Bob McGannon for an in-depth discussion in this video Discovering costing standards, part of Project Management Foundations: Budgets.
Going shopping in a mall the United States is very different than shopping in an open market in Mexico, or China. The cost you see, or are told, about a product is typically fixed in the US, but is only a starting point for rich conversation in other countries. These are two very different and distinct costing or pricing standards. Organizations in business typically have their own costing models, or standards for acquiring the resources you'll need to deliver your project.
So it is important you understand those costing standards. I want to share with you some typical standards, and how best to leverage them in your project. Step one, for leveraging costing standards, is to research your organization's internal accounting practices. Virtually every organization has some, and they will guide your costing process. Talk to your accounting department and ask what costs they track, and how they track them, and you'll have an initial model for budgeting and tracking cost on your project.
Step two is to determine pre-planned and last minute costs for a resource, and budget a blend of both costs. For example, say you need to hire a large piece of equipment, like a truck, to transport material as part of delivering your project obligations. You will probably find that to rent a truck costs x amount per day. However, you may also find out that your organization has a leasing agreement that allows you to hire the truck at a lower rate if booked two weeks in advance.
So, which amount should you put in your budget? Instead of automatically using the preferred price, determine the chances that you may need to arrange the truck at the last minute, and cannot leverage the corporate leasing agreement. As your schedule may change, it may be wise to consider a blending of the two rental costs in your budget. Step three, is to determine how the cost of people is tracked. For people within your company, this should include standard rates of pay, by pay grade or job level.
For contractors, there are a few other facts you need to budget correctly. Do contractors get an hourly or daily rate? Will you be charged a greater amount for some unique or in-demand expertise? Does your organization have standard contracts with personnel firms? All of this information can substantially affect your budget, so it's important you understand the details of how contractors are obtained and paid. Finally, there are vendor services and facilities costs to consider. Again, check with your accounting or finance department to see if they have a preferred costing standard for office space, telephone charges or other items.
Using this information gives you the ability to propose and manage budget alternatives. For instance, it allows you to consider project trade-off such as skill versus quality, versus time. For example, if you delegate a task to a junior engineer, they will do the work at a cheaper rate than a more experienced engineer. But, he or she may take twice as long to complete the task. You then have a trade-off in terms of cost per hour,, versus number of hours. Through all this, remember that no two projects will cost the same.
Time is money, and resources will typically cost more than you think. So use the costing standards in your organization, and the experience of other project managers who've worked on similar projects to help you achieve costing and budgeting success.
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- Discovering costing standards
- Examining capital and operating costs
- Assigning costs to resources
- Communicating your budget
- Recovering a bloated budget
- Addressing budgeting issues<br><br>
- The PMI Registered Education Provider logo is a registered mark of the Project Management Institute, Inc.