What You Need to Know about Cost Estimating and Cost Budgeting

Costs, deadlines, quality - effective cost estimating and cost budgeting is needed to ensure that project implementation remains as close as possible to the project plan.

Which success factors have to be considered? Who should be responsible and what tools do you need to make controlling efficient? We have the answers.

Definition: What is Project Controlling

Project controlling or cost estimating and budgeting is more than the term suggests. It can be defined as controlling and monitoring project activities over the entire project period with the aim of ensuring compliance with the project plan.

It is not only a matter of continuously checking actual and target results in order to detect deviations from the plan at an early stage, but also of taking corrective measures and identifying undesirable developments. The prerequisite for any effective project controlling is always the existence of a project plan.

The controlling can be taken over by different persons in the company. Often the project manager himself is responsible for this. In larger projects, the role of a project controller is also created or external experts are commissioned with project controlling.

Depending on which project method is followed, there are different definitions of controlling.

Which Methods are Used?

As part of project management, the quality of cost estimating and budgeting depends on the quality of project management as a whole. In order to maintain an ongoing overview of project progress, Gantt charts, milestone trend analyses, utility value and performance value analyses can be used, for example.

Gantt Chart (Work Breakdown Structure)

The entire project sequence is recorded in the work breakdown structure (WBS). It visualizes when which project employee is busy with which work package and shows the current progress of the project. This makes it easy for the project manager to see whether the project is on schedule or whether there are delays and bottlenecks.

Milestone Trend Analysis

Another helpful method is the milestone trend analysis. It is based on milestones previously defined for the project, i.e. the achievement of subgoals or the completion of subprojects. The overview of whether and how many milestones were reached as planned indicates whether the further schedule must be maintained or corrected.

Earned Value Analysis

The earned value analysis uses the indicators planned value, actual costs and earned value to determine how the cost and schedule situation of the project is to be assessed. The monitoring of the three indicators enables a trend analysis.

Cost-Utility-Analysis

A method that includes not only the hard but also the soft factors in the evaluation of the project is the cost-utility-analysis. It takes into account, for example, the urgency or strategic importance of the project for the success of the company. The procedure is always suitable when decisions have to be made between different alternatives.

The prerequisite is that there is clarity about the objectives to be achieved. A points system is established in which criteria are laid down which contribute to the achievement of the objectives. For each alternative, the criteria are reviewed and points awarded. The alternative with the highest score is implemented.

Challenges in Project Controlling

A common problem in project controlling: ambiguities regarding the three important factors of deadlines, costs or quality. If the objectives are unclear, controlling cannot take place effectively.

In addition, in controlling it is necessary to concentrate on the essentials in order to maintain an overview. Countless metrics can be recorded in order to record project progress in detail, but this leads to a loss of clarity in the flood of information. Therefore, only important key figures should be recorded, for example: percentage of completion, milestones and resource consumption.

Not every metric needs to be monitored at the project manager level, as much as possible should be monitored by employees at the work package level. They then only escalate to the project manager in the event of a crisis.

Success Factors in Project Controlling

Many success factors in project controlling correspond to the general principles that apply to the success of a project as a whole. Some factors specific to controlling can nevertheless be recorded:

Transparency in Target Planning

The project objectives must be clearly and measurably defined, especially in the relevant dimensions of costs, time and quality, so that a target/actual review can take place at all. In this case, the SMART method is a good choice. If the objectives are not clearly defined or known, this transparency must be demanded.

Valid Measuring Instruments

When defining targets or Key Performance Indicators (KPIs), make sure that you can also collect them in a selective manner. If necessary, processes must first be set up to record new KPIs or software must be implemented that measures the required KPIs.

Real-Time Recording of KPIs

Once objectives have been defined and KPIs derived, reliable controlling is not yet guaranteed. To do this, you must ensure that the relevant KPIs are collected promptly and that the results are available to you. Only then can you introduce corrective measures at an early stage to ensure effective controlling. Check that responsible employees are committed and that processes up to reporting are defined.

Error Culture

Establish a corporate culture in which mistakes are seen as natural stages in the learning process and employees are not afraid to be open to their mistakes. Otherwise, there won't be fewer mistakes, but you'll learn about them later, as employees invest a lot of energy to cover up mistakes and delay consequences. Ensure that mistakes are communicated openly in order to find solutions together.

Honesty and Openness

The error culture described above is only possible if you always treat your employees with respect and openness. In a climate of (non-)silence in which communication is not open, controlling can only be enforced with great effort. It therefore also pays off financially if you are interested in your employees as people and make a good corporate climate a priority.

Project Controlling Software: How to Work more Efficiently

Many companies carry out their cost estimating and cost budgeting with Excel. This makes life unnecessarily difficult for project managers. Excel is a good spreadsheet software, but it does not specialize in project controlling. Consequently the handling for this purpose is cumbersome, the overview inadequate and the results in the consequence not always reliable.

If you have professional project management, you should also use professional software. Project controlling is part of any serious project management software. So if you are looking for an intuitive and effective controlling solution, you are actually looking for a project management software.

From the point of view of project controlling, it is important that the following topics can be mapped with the application:

• Project plans
• budget
• budget planning
• project calculation
• time recording
• resource planning

Make sure that the software makes it easy for you to keep an eye on the relevant key figures at all times and that you can have individual reports sent to you (automatically).

Conclusion

Cost estimating and cost budgeting is one of the most important disciplines in project management. In order for project controlling to succeed, three stages must be taken.

Once the objectives and the key figures to be monitored have been defined, you as the project manager must select the appropriate methods to ensure compliance with the planned values. This takes you to the first level.

You must then ensure that the methods are applied and select the appropriate software for project controlling.

Once the second stage has been completed, you will also have to master the soft skills that are necessary to motivate the project team to achieve its goals and to adhere to the controlling processes.

If you take these three steps systematically, nothing stands in the way of the success of your project controlling.