Three Perceptions of Project Cost

4. How does the project manager view the project costs?

Cost is treated as a functional element of an organization that can affect project performance, interest expenses and profitability. The project manager view the project costs through three ways:

• Commitments. Project manager has to plan and report project costs. When he buys some projects or services from the vendor, he has to deal with commitments, which is the preliminary cost.

• Expenses. This represents the additional cost other than preliminary cost, which includs additional raw materials costs, adding staff costs, maintenance costs and so on. Project manager should focus on properly structured progress payment terms, because that can negate most of the project financial expenses.

• Cash Flow. Cash flow is the movement of money goes out or goes into the project. It can be used to determine a project’s rate of return or value, determine problems within the project, or evaluate the risks. The project manager should focus on whether the project schedule fit the cash flow. If not, how to adjust project schedule.

5. What other costs does the project manager need to be cognizant of? What actions should the project manager take concerning these other costs?

To be a completely effective project manager, one must be totally versed in the cost accounting practices, which affect the firm’s project cost reporting. The project manager should not only recognize the differences between commitments, expenses, and cash flow, but also recognize the effect of the timing of project cost. I think not only are the amounts of expenditures and encumbrances important, but also the time cost of a project is important.

One thing the project manager can do is, try to modify accounting system and let it accommodate project cost report and control all requirements. Another thing is, the project manager