Avoiding Overspend Essay Example | Topics and Well Written Essays - 2000 words

Avoiding Overspend - Essay Example Whenever there is a deviation from the planned programme causing change, recovery, rework, panic that lowers the specifications for project to be completed in time, it invariably results in overrun and consequent overspend that may lead to penalties. M'pherson The control measures adopted in project management usually aim at mapping the deviation from the defined plan. There are hardly any measures to identify areas of cost saving. The urgency to save, therefore precipitates at a near final stage which is an inappropriate time for cost saving. Cost saving needs maximum consideration at the planning and design stage itself. Once implementation begins, changes only escalate costs and cause delays. he key lies in managing requirements in such a way that overspend can be avoided. Cost control is necessarily an important step towards avoiding overspend. Some strategies for cost control are discussed below: 1. Involvement of Executive Management: Project cost control manifests its effectiveness best, when the executive management is involved in the decisions at all major phases of the project. It helps if the executive management can "recognize the importance of project risk management for identifying and planning to head off at least the most obvious potential risk events" (Max). 2. Estimating Project Budget: The cost of the total work of the project needs to be estimated at the planning stage. Detailed estimating, bottom up estimating, order of magnitude, analogus or parametric estimates can be used to project the cost of all activities and the entire project. If planning is done well, overspending at a later stage can be avoided. The risk management approach to planning can also help evaluate the assumptions and environmental conditions that dominate the project plan, so that weaknesses can be identified and the effect of any risks thus identified, can be avoided. A contingency fund or reserves is usually then set aside to cope with such risks. The budget also needs to accommodate the inflation factor. For this, final estimates are arrived at and then inflation cost is added as a percentage or lump sum. The inflation allowance then gets allocated to each cost item in relation to the actual expected inflation over the period for which costs are expected to b e incurred. 3. Establish baseline cost for each activity: To establish a realistic baseline, communication and integration of various types of information is extremely important. This may require robust