What is cost optimization in project management?
In both personal and professional environments, optimizing costs is essential for a healthy financial situation. Indeed, the latter is a decisive factor in the success of a project.
The success of a project is often only recognized when the trio of budget, deadline and quality is respected.
To guide you through the process, we offer a clear action plan for effective cost optimization in project management.
Understand the importance of cost optimization in project management
What is cost optimization?
Cost optimization in project management involves estimating, monitoring and analyzing project costs to keep them within budget.
Cost optimization must be determined as early as the project planning stage.
It is the responsibility of the project manager, and continues throughout the project's lifecycle.
Why is cost optimization important?
Ensuring project success
In project management, there are three main criteria for determining the success of a project: compliance with deadlines, quality and costs.
Cost optimization means staying within budget to prevent or at least reduce the risk of cost overruns.
💡 It's worth noting that cost optimization is a decisive factor in risk management.
Adopting a proactive approach
Project management can be approached either proactively or reactively. The proactive approach involves anticipating, while the reactive method involves reacting to a situation.
Cost optimization focuses on a proactive approach. For example, estimating the budget provides a guideline to follow throughout the project, and to react in the event of deviations.
This method is particularly relevant for IT Services, as it enables us to refine the scope of the project and ensure that expectations are realistic and clear for the customer.
Serving as a reference for future projects
Cost optimization also serves to build up a track record that can be used as a reference for future projects.
This provides a reliable database for project planning, and in particular for resource allocation, a key component of project management.
Dedicated tools provide a precise history of past projects, facilitating project planning.
For example, Stafiz allows a high level of granularity, providing costs by day, hour, project or task within the project, making it easy to compare one project with another.
Phase 1: cost the project upstream
Building a cost management plan
The first step in optimizing project costs is to draw up a cost management plan. This guide clarifies cost management within the project, and includes, among other things:
- types of costs involved in the project (details of fixed and variable costs to be anticipated) ;
- tools used to monitor costs ;
- key success indicators (amounts spent, remaining, return on investment, etc.);
- project stakeholders.
For greater precision, it should be compared with the project schedule and the list of deliverables.
In fact, a provisional project budget must be realistic in terms of the time allotted and the elements expected.
Use reliable data
This cost management plan can be built using past project history, manual data collection or tools.
Stafiz offers a centralized, real-time view of costs, enabling estimates that take into account forecast costs and profitability.
These numerous reporting options enable you to take a step back and analyze cost or time discrepancies on similar projects.
This comprehensive view quickly compares the discrepancies between the initial resource planning plan and the actual situation, while demonstrating their monetary impact.
Phase 2: optimize costs throughout the project
Tracking profitability
Project profitability study
First and foremost, you need to draw up a production plan.
In this way, you can quickly identify whether the capacities mobilized in your project planning are capable of generating profit, or whether adjustments need to be made.
This production plan calculates sales and profit by comparing resource mobilization costs with the project's selling price.
Identify variances between actual and forecast
Cost optimization involves monitoring, analyzing and adjusting costs.
The first step is therefore to collect the data, and then to calculate variances between actual and forecast. This enables us to check that the budget is on track with the estimates made.
To obtain a reliable forecast, it is important to integrate all project costs, such as :
- salaries ;
- non-billable expenses ;
- purchasing ;
- subcontracting costs.
Stafiz gives you a global view of projects, so you can see what has been achieved, what remains to be done, and what the forecast situation is in relation to the budget.
This exercise must be carried out regularly, at a frequency determined at the start of the project. This will depend on the type of project, the stakes involved, or the need for visibility on the part of project stakeholders.
Correct deviations
Staying within budget is essential to the success of a project, and that means optimizing costs.
If the budget is exceeded, a thorough investigation must be carried out to find the cause of the discrepancy. Once the reason has been identified, you'll need to think about how to compensate for or work around the budget difference.
You can plan action on the project scope, schedule, resources or deadlines. However, note that as soon as the scope of the project changes, the trio of costs, deadlines and quality is also affected.
Building clear financial reports
Financial reports provide a clear picture of all the data required for sound cost management. Clear reporting is essential for effective cost optimization.
Financial reports are often based on dashboards, as they provide an overview of the situation, and present the project's financial situation in summary form.
Quick to consult, they must enablea rapid analysis of the financial situation to facilitate decision-making. They also record any problems encountered and the action plan implemented.
Consolidated financial dashboard in Stafiz.
Financial reports are essential for building a reliable track record that can be used as a basis for further projects.
Adapt cost estimates to company structure
Differentiating between time and materials billing and fixed-price billing
Your billing method will impact your cost optimization strategy.
In fact, operating on a time and materials basis means having a clear view of the days and expenses not billed.
On the other hand, with a fixed-price contract, you need to be vigilant about the risk of overruns. These can potentially involve additional negotiations or even discounts, impacting your cost management.
Estimating the costs, prices and type of invoicing for a billable project requires a clear strategy, taking all parameters into account.
Understanding the project environment
Cost optimization also means having a clear vision of all the factors that can impact the project budget. Indeed, it is essential to consider both external risks (legal, environmental, etc.) and internal ones, linked to the way the company operates.
For example, teams operating in hybrid or remote mode can involve travel and tool costs, which impact on cost management.
Cost optimization must therefore take this into account and anticipate these impacts when estimating the budget.
Allow for margins
Finally, the budget must take into account the margins needed to cover each risk. Most of the time, 5 to 10% is sufficient.
However, this margin can be adapted to suit your project and your company.
Optimizing project costs: other strategies
The importance of capacity planning
Resource planning is an essential element in managing and optimizing costs. The definition of a workload plan is essential.
In fact, resources, both human and material, are the main expense item for a project. The term resource covers all the tools, equipment, materials and collaborators required for the project to run smoothly.
Thus, defining the project's resource requirements is an essential step, and must take into account the cost of each resource and the length of time over which they are needed. A clear view of costs is only possible with a realistic overview of resource requirements.
Stafiz Smart Matching enables you to optimize the utilization rate of your employees so as to improve your sales performance, and consequently win more opportunities. Allocate your resources according to your needs in terms of skills, experience or seniority.
Employee commitment is another criterion not to be overlooked if you are to succeed in your missions.
The more qualified and motivated your teams are, the lower the risk of delays.
Each employee is able to indicate on their profile or directly on a project what skills they wish to mobilize, or on what type of project they wish to be assigned.
Use automated solutions
Cost optimization concerns all projects. However, it must be addressed in a specific way, depending on the type of project and the context.
You need reliable information to make informed decisions.
Although you can base your estimates on past projects and the experience of your employees, there are a number of tools you can use to supplement these estimates.
Automated solutions that take into account all your company's characteristics, using data from other projects, will help you make more accurate estimates.
Stafiz offers a comprehensive tool that combines functionalities dedicated to cost optimization. It takes into account resource planning, risks and time estimates, and proposes automated processes such as invoice generation. Processes are automated, saving you time and increasing productivity.
That's why we recommend dedicated tools such as Stafiz. This solution offers a range of functions for estimating, monitoring, analyzing and controlling costs in real time, throughout a project, in a dynamic and intelligent way.
Frequently asked questions :
The aim of a cost reduction strategy is to reduce project or organizational expenditure while maintaining quality and objectives. It relies on levers such as process optimization, better resource allocation, negotiation with suppliers, and the use of adapted technologies. The aim is to achieve sustainable savings without compromising overall performance.
