There are many variables that determine the success of a project. However, the ability to control costs is considered a universal measure of success. It is crucial then that project managers develop, or have at their disposal, a well-designed control system that supports the ability to analyze and control costs. Regardless of specific data collection, a cost control system should perform the following functions:

1. Establish baseline costs.
2. Collect actual cost data.
3. Report and evaluate costs, such as earned value.
4. Determine and take corrective action.

Creating a thorough cost control program is an investment for any company because it takes time to design and implement an effective system. Key stakeholders must be involved in the design process to ensure the right data is captured for analysis and reporting. For example, cost classifications, the right level of reporting detail, and actual cost collection procedures must be determined. Questions such as, how will a cost control system interface with the organization's accounting system should also be considered. Other components should also be considered when designing a structure for a cost control system. These may include:

1. Reporting frequencies.
2. Reporting procedures.
3. Reporting formats.
4. Administration of the cost control system.
5. Authorization of time-phased project work.
6. Description of cost accounts.
7. Authorized work packages.
8. Role of cost account manager.

Once a thorough and effective control system in designed, and ready for use, project managers must receive training on the system prior to actually using it in a "real" project. Because controlling costs is so essential to a company's continued success, training project managers on the use of the system should not be overlooked or skipped.

Creating and Managing a Project Budget

A detailed project budget is typically the final piece of the project planning phase. This is because a project budget is based on planned contracts and negotiated costs over time, the project statement of work, resource allocation, and risk analysis. Critical to any budgeting system is a reliable scheduling system. Dollars are analyzed and tracked over time, or the life of the project.

In addition, a budget must be organized, or logged, so it can be traced, or tracked, by the project manager or project office. If a formal cost control system is not in place within an organization, a sound budget structure should be developed so dollars can be tracked, controlled, and reported throughout the entire project. A project budget must reasonable, attainable, and based on the facts and details of the project plan.

A thorough project budgeting structure should include tracking and reporting of the following:

1. Baseline Performance budget -- dollars based on detailed project planning of WBS, resource allocation, and time.
2. Distributed budget -- dollars being distributed and tracked over time in the implementation phase of the project.
3. Management reserve budget -- dollar amount set aside for unforeseen problems and contingencies. This is not a pool of dollars set aside to cover poor planning and budgeting!
4. Undistributed budget -- dollars set aside to cover identified scope changes that were not detailed enough to incorporate into the performance baseline budget.

Managing Variance Boundaries

Once a project budgeting system is in place, the project manager must manage variance boundaries. A variance is a deviation from plan. Variances in the planned schedule, technical performance, and budget must be monitored and managed by the project manager. The budget and schedule are monitored together in order to show an integrated measurement of the two, so a project manager needs to be able to see deviations of costs, work scheduled, and work accomplished in order to take corrective action that will resolve the problem(s) causing the variance. In order to identify the problem-cause-solution, the project manager should answer the following answer the following questions:

1. What are the potential problems causing the variance?
2. What are the root-cause problems causing the variance?
3. What is the impact on time, cost, and performance?
4. Is there potential impact on other areas or efforts within the project? What might those be?