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TEAMFLY160 BUDGETING AND COST CONTROL

In my experience, there are two important aspects of cost management that
separate it from the other project management functions. The first is that each
firm has a very specific way that they do it and a very specific set of terms that
they apply. It would be difficult to apply a pre-defined practice and a canned pro-
gram, out of the box, that would satisfy the firm’s accounting requirements. We
need only look at the Enterprise Resource Planning (ERP) applications to see the
effect of this situation. Firms such as Oracle, PeopleSoft, Baan, SAP, and J.D. Ed-
wards sell project financial management systems for several hundred thousand
dollars (or more) and then charge that much again to tweak the system to the
client’s specific needs. There is no such thing as out-of-the-box finance systems,
unless you are willing to abandon any in-house practices and accept the system
that has been built into the software as a default.

The second is that the accountants (financial analysts, bean counters, fi-
nance managers, whatever you want to call them) would never pass control or
even share control of the cost management function with PM people. Let’s
face it. If the accounting protocol is to process time cards and costs every two
weeks, it will happen. Nothing can get in its way. On the other hand, if the
scheduling protocol is to update the plan every other week, this will happen
only if one of the daily crises doesn’t get in the way. Traditional companies rely
on cost data to satisfy their basic operational measurements. These costs are
processed by the financial group, to a very structured set of practices, follow-
ing generally accepted accounting protocols. When projects are involved, we
often have had to duplicate the cost processing so that the costs are related to
the project work.

Some progress has been made in integrating the accountant-managed
cost data with the project-associated data by linking PM systems with Enter-
prise Resource Planning (ERP) systems. See Section 10 for a discussion of
PM and ERP.

An Overview of Budgeting and Cost Control

Without getting into the details of any costing application, we can still discuss the
general requirements and issues of project budgeting and cost control. We do this
in Chapter 5.1.

Software Support for Cost Management

Regardless of your methods for cost management, it will not be done on the back
of an envelope. The question is whether you will use special cost management