A.

Define Project Cost Control

Project Cost Control is the process of managing the costs of a project to ensure that the
project objectives are meet and the budget not exceeded. Cost control includes setting
realistic project budgets, controlling project costs, and monitoring and controlling project
expenditures. Many people have a poor understanding of cost control yet it is crucial to long-
term success. Cost control is not only “monitoring” costs and recording data, but also
analysing the data in order to take corrective action before it is too late. All personnel who
incur costs, not merely the project office, should perform it. Cost control implies good cost
management, which must include:

 Cost estimating
 Cost accounting
 Project cash flow
 Company cash flow
 Direct labour costing
 Overhead rate costing
 Other tactics, such as incentives, penalties, and profit-sharing

B. State TWO (2) importance of project cost control

Project cost control is important for two reasons. First, it allows the project team to stay
within budget. Second, it allows the project team to make informed decisions about which
projects to pursue and which to abandon. Cost control is important to all companies,
regardless of size. Small companies generally have tighter monetary controls because, the
failure of even one project can put the company at risk, but they have less sophisticated
control techniques. Large companies may have the luxury to spread project losses over
several projects, whereas the small company may have few projects.

C. State TWO challenges of project cost control

1. If the project is new or has never been, done before establishing a baseline cost for a
project can be especially difficult.
2. If the project is complex or has many different parts, ensuring that project costs are
within budget can be especially difficult.

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D. In an orderly order, state the FOUR (4) elements to measure and evaluate project
performance.

To measure and evaluate project performance, four essential elements must be in place. They
include

a. setting a baseline plan,

b. measuring progress and performance,
c. comparing actual performance against plan,
d. and taking corrective action

E. Briefly explain the processes stated in (D) above.

1. Establishing a project baseline plan

The project baseline plan provides the essential features for measuring performance. It begins
with an accurate work breakdown structure (WBS), which establishes all the work packages
and tasks associated with the project, assigns the personnel responsible for them, and creates
a hierarchical representation of the project from the highest level down. To create the project
baseline plan, the project team lays out each of the discrete tasks from the WBS onto a
project network diagram, and time-phases all work, resources, and budgets.

2. Measuring and monitoring progress and performance

Accurate mechanisms for project measurement are essential prerequisites of effective control
systems. The first step in creating them is to establish a control system that measures the
ongoing status of various project activities in real time, and provides project managers with
relevant information as quickly as possible. The second step is to determine what is
measurable. There are both quantitative and qualitative measures for monitoring project
progress, and integrating quantitative measures like time and cost into the control system is
relatively easy. On the other hand, qualitative measures like customer satisfaction with
product functionality and technical specification can be determined only through on-site
inspection or actual use.

3. Comparing actual performance against plan

Given that actual project performance is rarely in accordance with the original baseline plan,
the next step is to compare the two to measure deviations. This analysis sometimes referred to
as ‘‘gap’’ analysis is essential for determining current project status. As a rule, the smaller the

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deviation between the baseline plan and actual performance, the easier it is to take corrective
action.

4. Taking remedial action

In cases where the deviations between the plan and actual performance are large and obvious,
some form of corrective action is necessary to bring the project back on track. In some cases,
the action may be relatively minor; in others, it may require serious and significant remedial
steps. In situations where conditions or project scope have changed, the original baseline plan
may have to be revised.