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Many people have a poor understanding of cost control. Cost control is not only "monitoring" costs and recording data, but also analyzing the data in order to take corrective action before it is too late. Cost control should be performed by all personnel who incur costs, not merely the project office.

Cost control implies good cost management, which must include:

• Cost estimating

• Cost accounting

• Project cash flow

• Company cash flow

• Direct labor costing

• Overhead rate costing

• Other tactics, such as incentives, penalties, and profit-sharing

Cost control is actually a subsystem of the management cost and control system (MCCS) rather than a complete system per se. This is shown in Figure 15-1, where the MCCS is represented as a two-cycle process: a planning cycle and an operating cycle. The operating cycle is what is commonly referred to as the cost control system. Failure of a cost control system to accurately describe the true status of a project does not necessarily imply that the cost control system is at fault. Any cost control system is only as good as the original plan against which performance will be measured. Therefore, the designing of a planning system must take into account the cost control system. For this reason, it is common for the planning cycle to be referred to as planning and control, whereas the operating cycle is referred to as cost and control.

The planning and control system must help management project the status toward objective completion. Its purpose is to establish policies, procedures, and techniques that can be used in the day-to-day management and control of projects and programs. It must, therefore, provide information that:

• Gives a picture of true work progress

• Will relate cost and schedule performance

• Identifies potential problems with respect to their sources.

• Provides information to project managers with a practical level of summarization

• Demonstrates that the milestones are valid, timely, and auditable

The planning and control system, in addition to being a tool by which objectives can be defined (i.e., hierarchy of objectives and organization accountability), exists as a tool to develop planning, measure progress, and control change. As a tool for planning, the system must be able to:

FIGURE 15-1. Phases of a management cost and control system.

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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