Project cost reduction is a hot topic for both project managers and stakeholders. How to ensure high-quality project outcomes and at the same time not only fit into the approved budget but reduce costs? Our post will shed some light on this issue.
Tips on Reducing Project Costs
The recommendations listed below aim to prevent the causes for cost overrun and reduce project costs at the same time.
Be aware of the causes for cost overrun
Basically, budget overrun is a result of project delays, but there also can other factors:
- Wrong estimates (this refers to time, scope, and cost estimates, as these constraints are interrelated);
- Uncontrolled changes to project scope (they can lead to scope creep and project delays);
- Inefficient resource utilization (creates an illusion that there's demand for more resources);
- Improper risk management (makes a project vulnerable to the negative consequences of risk-bearing events).
Leverage an effective software solution
Effective project or resource management software can contribute to the optimization of project costs. For example, Epicflow, a multi-project resource management solution, has the following functions that facilitate cost reduction.
- It suggests smart resource allocation based on employees' skills and capacity;
- It facilitates balanced workload and increases productivity;
- It provides a bird's eye view of all project processes;
- It predicts bottlenecks that can hamper the flow;
- It enables faster project delivery and prevents project delays.
- It assists in making informed decisions thanks to scenario analysis.
Improve project cost estimates
The following recommendations will help you come up with more realistic cost estimates.
The techniques are listed from the least to the most accurate one:
- analogous estimation (based on a similar project completed in the past),
- parametric estimation (combination of historical data with statistical modeling),
- three-point estimation (the average of most likely, optimistic, and pessimistic estimates),
- bottom-up estimation (estimating the costs of certain project activities and aggregating them).
It's important to use them in combination to increase the accuracy of your estimates.
Time estimates will become the basis for cost estimates. Therefore, it's important to take team members' capabilities into account. If you underestimate the time your employees require to deliver the work, it will lead to a project delay. If you overestimate it, it will also result in unnecessary expenses.
Adding these buffers to estimated time and costs will make it possible to keep a project afloat in case of contingencies.
Keep control of changes made to a project
To prevent scope creep and not to let the changes derail a project, the following points should be kept in mind.
Ensure maximum efficient resource utilization
Efficient resource utilization is the key to preventing cost overrun and reducing project costs. What allows project/resource managers to utilize available resources efficiently?
- Resource capacity planning: forecasting resource demand will help avoid resource shortages and last-minute hiring, which will add to the approved project budget.
- Ensuring balanced workload: if employees work at their full capacity and aren't overloaded, their productivity will be high, and there will be less chances for delays or unplanned costs.
- Making sure that the team members work on tasks that fully correspond to their competence level and capacity. It will contribute to the high quality of outcomes and minimizes the probability of mistakes and/or delays.
Deliver projects faster with the right approach to task estimates
When tasks have strict deadlines, team member's productivity can suffer from Student syndrome and Parkinson's law. In the first case, they can procrastinate and start work on the task right before the deadline. In the second case, the work expands as much as to fit all the time allotted for its completion. In both situations, employees' productivity will be low. You can change the situation by using a different approach to task estimates - instead of having fixed deadlines, you can ask employees to complete their tasks as soon as possible. Such an approach will increase the efficiency of team members' efforts, make it possible to deliver faster, and in such a way reduce project costs.
Keep overall control of a project
To be able to reduce project costs and minimize the probability of cost overrun, you should constantly monitor the state of a project environment and compare it with the baselines. It will make it possible to spot any issues timely and react to them before they become serious problems. While the need for monitoring project budget is obvious, focusing on resources' progress can be overlooked. However, efficient work of resources is the basis for successful projects - if something hampers their work and they are inefficient, it will sooner or later be reflected on the state of the project environment and lead to unpleasant surprises including cost overrun.
Plan for risks
Knowing the sources of possible risks and ways to respond to them will keep you prepared for any events that may occur to project's scope, resources, time, or budget. Preparing a risk management plan at the project initiation stage will enable you to count on some extra costs that may be required if something unexpected happens. Whatever happens - a critical team member falls ill, or a piece of important equipment breaks down - it's better to be ready to respond to potential risks.
Reducing project costs is a really challenging task in today's uncertain business environment. It requires certain project and resource management efforts: constant control and management of project costs, efficient utilization of available resources, assigning perfectly matching employees for completing project tasks, managing possible risks, improving estimation process, prioritizing tasks and delivering them asap instead of following established deadlines, etc. The solutions provided by smart project and resource management software will also be a great help in this regard.