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Most enterprises will tell you that a successful cost management program is essential to their ongoing success, but not all project managers are adept at figuring out the basics on their own. At a glance, a successful project management program starts with project cost management, but what exactly does a successful cost management program look like? From having the right tools to cultivating a knowledge-driven environment, here are some ways to lay the groundwork.

cost management

Clear, Concise and Relevant Performance Objectives

Effective cost management is more than just knowing when and where to cut costs. Instead, project cost management is dependent on identifying the subtle, everyday source of the problem and correcting it accordingly. This could be anything pertaining to technical proficiency, effective maintenance and various aspects of production scheduling. Aligning these performance objectives with proper performance expectations is the first step to a successful cost management program.

Appropriate Tools for Success

The knowledge level and tools available to every individual you employ empowers your entire enterprise to succeed. It is important to recognize that your sales force must have a working understanding of cost, manufacturing and the impact of both the product they are selling and the customer’s overall decision on your enterprise. This also applies to scheduling and production. Each side must understand how their individual actions directly impact lead times, costs and inventory.

There’s Only One Performance Based Target

In the past, many organizations measured performance through continuous improvement, or a comparison of past and present performance stats. Unfortunately, this strategy implies that there was a defect present in the process, which is something modern day customers are no longer willing to accept. Instead, present day customers demand nothing less than excellence, which is the only criteria you should rely on to evaluate individual performance within your enterprise.

Successful cost management requires you setting the bar for the level of performance acceptability at the minimum amount required for excellence rather than mere satisfaction. This is reflected in things like safety policies that don’t tolerate any workplace injuries, annual cost reduction and late delivery policies. Excellence also demands adept technical skill, capable performance systems with a solid training program and data integrity.

Cultivate A Knowledge-Driven Environment

This is likely the most important aspect of cost management, as it revolves around the leadership of your organization having a firm grasp on the structural aspects of organizational cost. This means they acknowledge that the overall cost is ultimately dependent on decisions made by and systems used by management. This implies that your leadership must be ready and willing to accept change as fundamental in order to challenge their decisions and embrace the individual perspective of each of their employees. Conversely, employees should feel empowered by their environment and managerial structure to make informed decisions that will ultimately help the enterprise maintain its goal of excellence.

Go Back to Basics

Always be prepared to return to basics if you have to. Effective cost management means that your organization is trained to question just about everything. You should constantly be asking yourself and your team how certain activities will impact sales and product margins and how particular investments will impact production quality and efficiency. In doing so, you can intuitively eliminate the customers, products, tools and methods that don’t meet these standards.

Doug Uptmor
Doug Uptmor, Director of Content