Cost Management

COMP3770 Assignment 1 14/03/23

In this unit, we cover project cost management as one of the project management knowledge areas, i.e., in the context of information technology (IT) projects. According to Schwalbe (2019):

“Project cost management includes the processes required to ensure that a project team completes a project within an approved budget. Notice two crucial phrases in this definition: a project and an approved budget. Project managers must make sure their projects are well-defined, have accurate schedule and cost estimates, and have a realistic budget that they were involved in approving. It is the project manager’s job to satisfy project stakeholders while continuously striving to reduce and control costs.

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Many IT projects are never initiated because IT professionals do not know how to develop a financial justification for them. Likewise, many projects that are started never finish because of the cost management problems”.

Consider yourself as an IT project manager. Write a maximum of 700 words[1] delineating the challenges an IT project manager may face across the key processes of project cost management. Please also provide some recommendations to address the identified challenges.

Introduction

This paper aims to explore potential challenges one might face during the Cost Management process of a project’s life cycle, and recommendations for addressing said challenges. Cost Management as an aspect of Project Management share similarities across disciplines and industries. Arguments drawn for this paper include those from disciplines outside Information Technology (IT) but have been adjusted to the perspective of an IT project manager.

Challenges of Cost Management

Poor Financial Literacy

(Schwalbe 2018) argued that IT Project Managers struggle to justify elements of Cost Management to the relevant program managers. The use of the Program Manager role in this context is under the assumption that the Program Manager oversees the allocation of funds. IT Project Managers share a gap in financial knowledge with their Program Managers due to the amount of financial training each party had undergone. In contrast, IT Project Managers are highly trained in technical knowledge, and it can be hard for them to move away from or simplify technical terms and concepts when it is crucial to the project.

Complex Projects

Complex projects require tremendous resource due to its complex nature and high risk, a complex project that fails, or does not produce valuable learning points, will cripple an organisation that did not perform adequate risk management based on its resources. (International Centre for Complex Project Management 2012, p. 6) defined complex projects as, “Open, emergent and adaptivesystems that are characterised by their recursiveness and non-linear feedback loops.” They are resistant to optimisation, high in variability and experience high conflict between tasks in its Work Breakdown Structure (WBS). In addition, negotiation with potential contractors or suppliers are tough since the specifications are highly complex or brand new. The IT Project Manager must decide between reporting a vague quotation or leaving the quotation blank, which runs the risk a cost overrun in the later stages of the project.

Incomplete Documentation

Besides the product, another deliverable at the project closing stage is the project documentation. Documentation is crucial to the success of current and future projects because they include specifications on how to run and maintain the live product, as well as key takeaways that may be relevant to future projects. One cause of incomplete documentation is poor documentation management. Among other reasons, (Kujala, Brady et al. 2014) stated that the lack of documentation hindered the cost estimation process of complex or first in market projects. Incomplete documentation prevents IT Project Managers from access to key insights or established figures, therefore, time is wasted gathering that information again.

Recommendations

Appointing a Cost Manager

In most project management frameworks, the role of Cost Management is taken on by the project manager, however, (Smith 2014) argued for the separation of the Cost Management from the project manager’s responsibilities. The distinction of cost manager addresses the gaps in financial knowledge of an IT project manager while giving the IT Project Manager space to focus his attention where it is need more. A cost manager trained in finance or accounting is better able to address andjustify the Cost Management process compared to an IT Project Manager with limited training in those disciplines.

Improving Financial Literacy

Improving financial literacy aims to equip IT Project Managers for Cost Management. (Brill, Bishop et al. 2006) suggested that project management requires a holistic and well-balanced set of skills and traits as opposed to a handful of select skills. Upgrading the technical and theoretical financial literacy of IT Project Managers will optimise the Cost Management process when providing cost justification and generating reports. IT technical knowledge supplemented with training in finance or accounting creates a more holistic skillset for IT Project Management and will better equip IT Project Managers in the task of Cost Management.

Conclusion

The scope of Project Cost Management is vast and is unable to be covered due to the limitations of this paper. The challenges faced in Poor Financial Literacy, Complex Projects, and Incomplete Documentation. Recommendations in the form of appointing a Cost Manager and improving Financial Literacy are two options which can be used interchangeably or simultaneously within a project.

Bibliography

Brill, J. M., et al. (2006). "The competencies and characteristics required of an effective project manager: A web-based Delphi study." Educational technology research and development 54: 115- 140.

International Organisation for Complex Project Management (2012). "Complex Project Manager Competency Standards Version 4.1" International Organisation for Complex Project Management / Defence Meteriel Organisation.

Kujala, J., et al. (2014). "Challenges of Cost Management in complex projects." International Journal of Business and Management 9(11): 48.

Schwalbe, K. (2018). Information Technology Project Management, Ninth Edition, Cengage.

Smith, P. (2014). "Cost Management–Global issues and challenges." Procedia-Social and Behavioral Sciences 119: 485–494.