Project Management: Ways to Manage Your Project Cost Risks
In project management, it’s critical to understand the return on investment in each piece of a project. With that, you must know how to manage your project cost risks. A problem in any project area will result in an increase in costs in some way. This article explores cost risk, which fees may increase for your projects, and ways your project manager can help reduce cost risks.
Defining Project Cost Risks
Project cost risks are risks that a project will spend more than initially budgeted. It will either result in overspending on the project or a reduction in the project deliverables as money is pulled from other areas to compensate for increased costs. However, there is a positive side to cost risk โ has your project ever ended with an under budget? This is a reason for celebration and a chance to determine where to allocate the unspent money, whether seeking better deliverables or on a project team incentive.
Moreover, project cost risks can occur due to internal and external cost risks in project management. Let’s review both below:
Internal Project Cost Risks
Internal project cost risks occur when something inside the business changes to increase the money needed. Some examples may include the delivery of work taking longer than expected or incorrectly predicting the budget to complete the project.
External Project Cost Risks
As a project manager, external cost risks are cost changes that are out of your control. They could include exchange rate fluctuations, banking fees being amended, or price changes in materials.
Which Costs May Increase During a Project Lifecycle?
- Labor โ Your projects will need to pay overtime for new employees or freelancers to complete work when more work is required to make changes.
- Materials โ If a project area fails, more materials could be needed, and these might be more expensive than the originals.
- Equipment โ Hardware needs might increase to fulfill new project demands, requiring capital investment.
- Administration โ As a project expands, your project manager will need to perform more administrative work to keep stakeholders informed.
Ways to Reduce Project Cost Risks
It is vital to deal with changes as a project leader because you will always be able to continue a project by changing its cost profile. Make sure robust planning and projections are made ahead so you will know how to budget time and resources for tasks next time. Having documentation available in project management can help correct this from the beginning.
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