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The control cost process is the process of monitoring project status to;

  • Update project costs.
  • Manage changes to the cost baseline.

The key benefit of the process is that it;

  • Provides the means to recognize variance from the plan.
  • In order to take corrective action and minimize risk.

The key to effective cost control is;

  • Management of approved cost baseline.
  • Management of the changes to that baseline.

Updating the budget requires knowledge of the actual costs spent to date.
Any increase to the authorized budget can only be approved through integrated change control process.

Monitoring spending without linking it to the value of the work done;

  • Is not valuable on its own - not very informative finally.
  • Informs & allows the project team to stay within authorized funding.

But much of the valuable effort of cost control is analyzing the relationship between;

  • The consumption of project funds.
  • Physical work being ACCOMPLISHED for such expenditures.

Project Cost Control Includes:

  • Influencing factors that create changes to the authorized cost baseline.
  • Ensuring all change requests are acted on in a timely manner.
  • Managing the actual changes when and as they occur.
  • Ensuring that cost expenditures do not exceed the authorized funding;
    • By period.
    • By WBS component.
    • By activity.
    • In total for the project.
  • Monitoring cost performance to isolate and understand variances from the approved cost baseline.
  • Monitoring work performance against funds expended.
  • Preventing unapproved changes from being included in the reported cost or resource usage.
  • Informing appropriate stakeholders of all approved changes & associated cost, and;
  • Bringing expected cost overruns within acceptable limits.
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Cost Management          
Monitor and Control          
Control Costs          
Process Inputs          
Project Management Plan          
Project funding require          
work performance data S          
organizational process assets          
Tools and Techniques          
Earned value Mgmt.           
To complete Per. Ind. TCPI          
Performance reviews          
Proj. Mgmt. Software          
Reserve analysis          
Process Outputs          
Work Performance Info.          
Cost forecasts          
Change Requests          
Proj. Mgmt. Plan Updates          
Proj. doc. updates          
Org. Proc. Assets updates          
Process Benefits          
Provides the means to recognize variance from the cost plan: In order to take corrective action and minimize risk.
The key to effective cost control is;
*  Mgmt. of approved cost baseline
*  Mgmt. of the changes to that baseline.

The PMBoK lists variance analysis as a tool & technique for project scope control; not cost control. ProPM proposes also using variance analysis for project cost and overall financial control.

Effective cost, revenue and operating profit variance analysis enables a PM to communicate more effectively with project stakeholders; to the extent that senior stakeholders review financial metrics monthly. Timely and accurate variance analysis, supported by PM comments and explanations for the variances can be a key input to project cost and schedule re-forecasting.

The monthly performance and maintenance of this analysis can read like a book; documenting and providing explanations to senior stakeholders regarding; where the project has been, where it is and where it is going. Such analysis can be a key supporting component to performing integrated change control.

Proper financial control has become a required centerpiece of corporate auditing accountability since the passage of the Sarbanes-Oxley Act (SOX) of 2002. Much of a corporation's monthly financial performance versus its annual financial forecast is impacted by the performance of its portfolio of ongoing projects. Therefore one aspect of a project manager's job is to participate and contribute to monthly financial closure and reforecasting processes. This entails examining the variances between monthly forecasts and actual results, every month.

The structure, urgence and gravity of such monthly meetings is not covered in the PMBoK.

Financial control, however, is not as easy as examining the prior month's forecast to the actual results. That is simply where it starts. Typically, the monthly review process includes an entire set of financial variances to be discused and explained. For example; one may be required to explain the current financial quarter's performance versus the same quarterly forecast from three months ago. One may be required to explain the forecast for a month, three months in advance, versus that same month's forecast 6 months ago. The opportunities are virtually endless. In many scenarios a PM will not even know which variances will require explanations.

By examining a range of different financial variances every month it becomes impossible to misrepresent the financial state of the project. Senior management must be accurately informed about the state of performance in order to forecast accurately for the entire corporation and deliver accurate financial statements as required by law.

Without a background in financial accounting and the financial principles driving corporate decision making it is challenging for a PM to participate proactively and effectively in this process. Explanations should be supported by a range of financial calculations examining the subject from multiple perspectives. Bad news cannot be hidden. Good news cannot be manufactured. Be prepared.

A project manager has an enormous handicap in this process. The range of variances that require explanation in a given month are handed to the PM simply as a set of numbers. The numbers are generated by the corporation's financial software package; whichever one it may be. The process is essentially the same across different industries and corporations.

The PM's handicap is not knowing how the numbers are calculated.

In this section, ProPM will provide you with a step by step overview of how to calculate a whole range of financial variances on your own, that will match identically 100% with the variances generated by your company's financial software program.

We can do this by using MS Excel in a way it was not intended to be used.

You can do this yourself. ProPM will show you how. It's not as difficult as you think. All you need is a rather basic knowledge of MS Excel and bit of patience.

* * *

Where to begin? Keep in mind that there exist two basic types of businesses: public and private.

Private businesses are owned privately and are not required by law to share their financial results with the public. If they make a profit or a loss; it's nobody's business. Private corporations do not issue stock or bonds for the public to purchase. Essentially, private corporations do not look for capital outside of the business. Finally, they finance their entire business themselves or through private loans with banks or other 3rd parties.

Public businesses are at least partially owned by public people or entities through the sale of business stock or bonds. Why do businesses decide to sell at least partial ownership to the public; a "public offering?" There are many reasons. The most typical reason is because the business has massive growth potential but needs allot of liquid cash to finance its growth. Whereas it could borrow money from a bank and pay interest; thereby remaining private, by selling a percentage ownership through a public stock offering, the business can raise cash to finance operations with no debt obligation. The public is motivated to buy the stock because the value of the stock will probably increase in the future and can be re-sold back to the public for a gain - or loss, if plans don't go as expected. Therefore a business owned by the public is required by law to report its operational and financial results to the public.

Both private and public businesses will perform variance analysis of their financial plans and results; this is simply a structured activity to ensure the process is under rigorous control. Public businesses are required by law to accurately publish their financial results in order to fully inform the public.

* * *

Projects could be 1, 4, 5 or 20 years in length - any length. There will always be 12 month annual budgets within the host organization. For example, as the year evolves there will be actual monthly results and additional months of forecast in the future months. Every month at the end of the month, monthly actual results are compared with the prior month's forecast. The variances between actual and forecasted results are explained. Thereafter the entire monthly forecast of the project is adjusted (re-forecast) to take into account the actual results. Especially within large corporations, all funding, investment and expenses are carefully forecast and controlled. Projects operate within this environment and have an impact on the hosting organization's finanacial results and obligations.

Fortunately, there is a standard nomenclature for discussing the garden variety corporate annual budget. Most begin in January. But it could begin any month. Let's assume January in the this discussion. The annual budget nomenclature is as follows;

0 + 12___no actual results, 12 months forecasted results.

1 + 11___1 month actual results, 11 months forecasted results.

2 + 10___2 months actual results, 10 months forecasted results.

3 + 9___3 months actual results, 9 months forecasted results.

4 + 8___4 months actual results, 8 months forecasted results.

5 + 7___5 months actual results, 7 months forecasted results.

6 + 6___6 months actual results, 6 months forecasted results.

7 + 5___7 months actual results, 5 months forecasted results.

8+ 4___8 months actual results, 4 months forecasted results.

9 + 3___9 months actual results, 3 months forecasted results.

10 + 2___10 months actual results, 2 months forecasted results.

11 + 1___11 months actual results, 1 month forecasted results.

12 + 0___12 months actual results, end of cycle.


A wise man once advised me; hope for the best and prepare for the worst. With that thought in mind we should approach our task of bullet proof financial control. What I mean is - if the project we are preparing to control has an original plan of, say 18 months; lets just go ahead and build out a control architecture for 6 years - it won't waste any effort on our part and it will deliver the peace of mind from the very beginning that we are prepared in the orginal control architecture for any deviations from the original plan, say, at least 2 standard deviations from the mean. Even in a cataclysmic worst case scenario - we can expand on the excel arcitecture with minimal effort anyway - out to 2 years. So this is mainly a first step in confidence. People will be relying on you to tell the truth behind the numbers. Better to walk into the room 4 steps ahead of the game.

So what are we talking about when we say - build out the excel architecture? This is interesting from two immediate points of view. First off it means one will build an excel spreadsheet (based on the above example) which is predesigned for 6 years - an 18 month project with a worst case scenario of lasting 6 years. Again with the ProPM method you are about to learn its not going to really require much extra effort on your part to build out to 6 years. Now, secondly, for the MS Excel afficiandos who may be reading this discussion; what we are about to learn was not even possible until Microsoft relased a 64 bit version of MS excel in 2010. I developed this process with a 32 bit version of MS excel purely out of desperation because I saw the analysts around me being slaughtered. As they say; necessity is the mother of invention. Whew this going to be a long story!

Let us not become diverted now, however. Lets again focus on, "building out the architcture." In the same spirit with which we build in extra capacity for 6 years, for an 18 month project; so too will we build out extra capacity for the NUMBER of projects. My intention is not confuse you my dear reader. I know what you are thinking... You must be thinking - wait - isn't this ONE project? OK, maybe it is one project you will begin with. But in the real world, project tend to fragment and multiply like rabbits. What do I mean? For example, suppose you are managing (financially controlling) the project to build a house. In this example; laying the foundation of concrete, building up the wooden frame, installing the electricity, adding the plumbing, painting, etc may all originally be considered one project with one single budget... Suddenly, the project CEO (program manager, sponsor - whoever! Whoever can tell you what to do - suddenly this person walks in with an excited tone and says;" listen; I don't like it anymore that this all being managed as one project!" Why? Alors; there may be different people managing the different tasks; laying foundation on concrete, painting etc. In the mind of the leader it is paramount to know who to blame - certainly not the leader. In this example you could say; the leader is the apex predator in the blame jungle - the leader is the one who has authority to lay blame. The contemporary agile leader must also be skilled in admonising others that they shouldn't blame others for problems. Anyway, I digress.

The point we were discussing was about building out the excel architecture. The point is; if you are responsible for financially planning, controlling and reporting one project - well - personally, I like to build in extra capacity for 100 projects. Thats the safe way to go. It's also a good litmus test to keep up your sleeve if you ever find yourself confronted with a desperate and stressful leader. Sometimes, a leader under pressure will indeed turn in desperation to the financial controller and sort of suggest that the leader and the controller are a core team and more or less buddies. That's cool! Thats when you need to reassure the leader that even if the project takes 10 times longer than planned, or requires one project being divided into 50 - the leader can rest assured you will deliver 110% accurate reporting. Look that leader square in the eye. Let the leader know - the leader will feel it - there could be 100 reasons the project can go wrong and 20 different people to blame; but you will not be one of them.

Continue reading, dear reader, and I guarantee you will never, ever, lose the blame game if a project / program / portfolio / whatever veers terribly off course due to the incompetence and lack of planning of others. I can vivdly remember a brave woman on a teleconference once telling a leader; "a lack of planning on your part does not constitute a crisis for me." Bold! She quit a few weeks later and was almost immediately hired by a more prestigious business within a matter of days. Let that be lesson. Build out your Excel control file capacity for the worst case scenario - extra years - extra projects - keep your cool and you'll be fine. If you don't know what you are doing, you risk that trip to the guillotine.





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