Cost is a major factor in measuring project success. In fact, cost is one of three in the triple constraint, cost-schedule-scope. A project manager that can deliver a quality product or service on time and under budget will be in high demand.
Typically, at the start of scheduling a project, cost is variable and duration is fixed as you seek to find the schedule length. However, after budget approval, cost becomes fixed and the priority. This is because once approved it can be challenging to get your program sponsor to increase the budget. So the effort shifts to focus on reducing costs to stay under budget. Your cost efforts may be at the project level where cost-schedule-scope remains in equilibrium and the project manager has authority to make necessary adjustments.
If cost-schedule-scope goals cannot be achieved the only resort is to make changes at the business level of authority, and that requires approval from stakeholders, e.g. project sponsors. Knowing and applying the project-level and/or business-level tools of the trade for decreasing cost is an important skill-set for any project manager.
This article discusses ways that a project manager can reduce cost to ensure that his project completes on or under budget.
The first set of cost cutting measures below makes changes that keep the project on target for its original cost, schedule, and scope objectives. Because the three parts of the triple constraint cost-schedule-scope project equilibrium will not be negatively impacted, the project manager and team have full authority to make these decisions and implement these cost cutting measures.
Find Cheaper Contracts
The number one best way to lower cost is to solicit proposals from not one, but several bidders. Contractors are quick to discover whether they have competition and adjust their costs accordingly. Open the contract to multiple subcontractors and select the one that is the best value for the money.
Time is money, so research companies past performance completion rates and go with the company that has an on-time delivery reputation. Specialized companies that can work faster may be cheaper even at higher rates.
Even if you are limited to one bidder you still might be able to reduce the agreed upon cost by engaging in some negotiation based on your cost estimates. Usually it’s the procurement department’s responsibility to engage in contract negotiations. Your responsibility is to provide procurement with a sound statement of work and an accurate cost estimate.
Find Cheaper Resources
Even though they require training, companies are always hiring recent college graduates, because they are cheaper. Well, maybe the work does not require a resource with 20-years’ experience. Perhaps, a less experienced but cheaper resource is the way to go.
In the effort to assign cheaper resources you may find it beneficial to break up a long task into a sequence of short tasks. Maybe, you can assign cheaper resources to some of these shorter tasks. The only way to know is to examine the scenario where you break up a long task. Instead of one long task, the thought is a group of short tasks should provide more flexibility in resource assignments.
Shorten the Project Duration
Again, time is money, so look to optimize your schedule by shortening the longest path. If you can shorten the duration of activities along the longest path or perform some of these activities in parallel you might be able to decrease the overall project duration.
If you can legitimately shorten the duration of activities along the longest path you may decrease the project labor expense. You definitely will lower the facility and other administrative overhead costs. Refer to the following blog To Shorten The Critical Path for more ways to shorten the schedule duration.
Prevent Overtime Work
If you are considering overtime work than your project most likely is behind schedule. In this situation you will have to determine the higher priority cost or time, and limit overtime work accordingly.
If you can smooth the resource workload to limit valleys in the schedule where your resource has idle time, you will reduce the sometimes hidden cost of idle resources. The hidden cost comes from having to pay a resource during these idle times. Even if your resource has other projects to work on that will pay this idle time, the resource will be more productive with a smoother workload. A smooth workload reduces unproductive effort produced from an erratic schedule where your resource has to start and stop and keep changing focus. Yes, there is a ramp up time for optimum resource productivity.
Reexamine Effort Estimates
Does your resource really need 8-hours per day to perform an activity or can they work part-time or 4-hours per day on a scheduled activity? As you would examine duration estimates to shorten the schedule look to effort estimates to reduce cost. This may require some renegotiation with your team member resource managers.
The next few cost cutting measures analyze the project at the business level. This is when all attempts to balance cost-schedule-scope at the project level fail. Adjustments at the business level require decisions beyond the authority of the project manager and team. Business level reevaluation requires authorization from key stakeholders.
Reduce Product Scope
Sometimes a project manager must make difficult decisions. Reducing scope to reduce project cost maybe one of those tough decisions. If the priority at this juncture is cost than you just might have to prune the scope to save the project. Reducing scope allows you to remove activities from the schedule and their associated resource costs. Note that scope reduction may require authorization from important stakeholders.
In your effort to reduce scope, reexamine the product requirements. For example, there is the possibility that you go over budget, because your product was “overbuilt”. So reexamine the true product scope requirements and reduce any functionality that does not contribute directly to the business case and/or value of the end product.
Reduce Profit Margins
To keep your product competitively priced and to win the contract the best way you can reduce costs may be to simply reduce your company’s profit margin. This, of course, is least desirable. Profit margin adjustment also requires authorization from high level managers. However, here you can reduce cost and maintain schedule and quality commitments.
Your company business model is more viable at more reasonable profit margins, but this might help your company gain business and grow market share. Be warned that at some point you will have to readjust profit margins and use more traditional cost cutting approaches to have a sound and profitable business model.
It is important for a project manager to know the authority they possess to make changes to the project. If adjustments maintain the delicate balance between cost-schedule-scope than the project manager will have authority to act. The project manager typically can act at the project-level to reduce cost, accordingly.
Favored project-level cost cutting approaches include multiple bidders, finding cheaper resources, shortening duration, and renegotiating your team member’s estimated effort. If the triple constraint delicate balance cannot be maintained than key stakeholders must enter to provide the appropriate authority. Here reexamine the specified requirements. Perhaps, some of the requirements are unnecessary and will result in an overbuilt product. If not, than you may have to implement the difficult procedure of reducing legitimate scope to save cost.
To gain market share many companies will decrease their profit margin, but this is only a temporary option; sound businesses must make money and reasonable profits.