6 Best Ways to Reduce Project Costs

Project Cost

6 Best Ways to Reduce Project Costs

According to PMI’s study, “38% of projects don’t stay within their planned expense range, and 35% of projects fail because of a budget loss”. 

This data illustrates how vital budgeting is in determining project success. When project managers can accurately anticipate the costs of each project phase and develop an expense plan, it helps them avoid budget overruns.

However, poor planning, incompetent resource allocation, or frequently shifting project scope can increase project resource costs. It derails a project and adversely affects organizational efficiency and profit margins.

Therefore, the manager must monitor and anticipate project costs at every stage and develop a budget plan to avoid discrepancies. It will help you keep the budget in check, prevent it from exceeding the forecasted amount, and complete the delivery satisfactorily.

This blog discusses strategies to reduce project management costs and how Saviom‘s advanced resource management software can help. 

But first, let’s begin with the basics- 

Why is it necessary to control overall project costs? 

Controlling project cost is integral to the project manager’s duties and responsibilities. However, a lack of proper cost management strategies can drastically impact profit margins and the company’s financial stability.

As a result, businesses must implement measures to keep a project’s budget on track throughout its lifecycle.

In addition, maintaining and controlling the budget facilitates overseeing and managing expenses, tracking forecast vs actual cost, anticipating financial risks, and so on.

It enables managers to implement corrective measures if there are any cost variances from the baseline. This helps avoid future risks while increasing the ROI and gaining a competitive edge.

Now that we’ve established why budgeting is imperative, let’s look at how organizations can reduce project resource costs.osts.

 Ways to reduce project resource costs

As we know, unnecessary resource costs can negatively impact the project’s progress and profitability. Below are some strategies that will help reduce project costs and offset the subsequent challenges. 

2.1. Avoid deploying expensive senior resources for mundane BAU activities

Identifying and assigning the right resources is essential to deliver the project on time and within budget.

When managers allocate overqualified and expensive resources to non-billable activities, it causes budget overruns. Furthermore, this reduces resource productivity and engagement.

Instead of assigning skilled, expensive resources to mundane BAU activities, managers can leverage competent junior employees as an alternative.

This ensures resources are efficiently allocated to the right job, which improves employee performance. Additionally, this helps maintain project quality and reduce costs.

2.2. Leverage cost-effective global resources across matrix boundaries

Visibility across matrix boundaries enables managers to identify and share cost-effective local and global resources between projects and functional units.

Additionally, it allows managers to create the right resource mix and assign the best-fit resources across the matrix structure. Thereby preventing budget overruns.

If local resources with a specific skill set are unavailable, organizations can leverage the multi-location policy to identify cost-effective global resources.

This helps maintain the project’s financial health and significantly reduces costs while maintaining quality.

2.3. Track forecast vs actual costs to control project expenses

Project managers’ primary responsibility is to monitor critical project financial indicators such as resourcing costs, revenue, profit margins, and overheads.

If not, there is a chance that the projects will exceed their budget, endangering the company’s financial stability.

To avoid this, managers should track the actual spending with the forecasted costs, and in case there is a variance in revenue, managers can undertake necessary corrective measures. This also helps improve future estimations and avoid billing losses.

2.4. Create a balanced mix of permanent and contingent resources

A balanced blend of permanent and contingent resources helps organizations prevent last-minute firefighting and reduce hiring/firing cycles.

Therefore, managers should first analyze the nature of the project and determine if the skill demand is a short-term or long-term requirement. 

Depending on that, they can create the right balance of permanent and contingent resources. This helps reduce the workload of critical permanent resources significantly. In addition, it minimizes resourcing costs and ensures the timely delivery of projects without budget overruns.

2.5. Monitor and optimize resource utilization levels

Allocation of under or over-qualified resources can drastically affect the project’s progress. When a resource is overutilized, it causes excessive stress and burnout, leading to project delays and budget overruns.

Conversely, when a resource is underutilized, it will result in a loss of revenue and lower employee morale, leading to unplanned attrition.

By forecasting and tracking employee utilization levels, the manager can ensure that no resource is over or under-allocated against their capacity. 

In case resources are underutilized, managers can mobilize them from non-billable to strategic/billable projects and boost financial return.

Further, in the case of overutilization, managers can implement resource levelling and smoothing techniques to ease the workload.

In this way, managers can optimize the resource health index and ensure that the project is completed on time and within budget.  

2.6. Formulate a backup strategy for the critical project members

Every project has important tasks managed by critical resources that cannot be stopped midway or will bring the project to a standstill.

However, in many instances, sudden resignation or unannounced absence can negatively affect the project and the firm.

So, managers, when drawing out a project plan and scheduling resources for the tasks, must formulate a backup strategy for these critical ones in key positions.

They should assess project requirements, identify requisite skills within the talent pool and leverage resources from the bench.

They should assess project requirements, identify requisite skills within the talent pool and leverage resources from the bench.

Additionally, managers can implement training/upskilling programs or succession planning to prepare existing employees to perform specialized functions.

These future-focused practices will help organizations avoid a single point of failure without a budget overrun.

Now let’s see how modern resource management software helps you overcome these constraints.

How can an advanced resource management tool help?

Saviom’s enterprise-grade resource management software provides 360-degree visibility of the resource pool.

This enables managers to view the critical attributes such as skill sets, competencies, cost rate, etc., and identify best-fit resources with a relatively lower cost rate.  

The advanced filtering feature of the tool allows managers to identify skilled resources from cost-effective global locations and significantly reduce resourcing costs.  

The tool’s resource capacity planning feature helps managers to perform a gap analysis to identify excesses and shortages of resources ahead of time. Accordingly, resource managers can use appropriate resourcing treatments to fulfil resource requirements.

Moreover, the forecast vs. actual cost reports helps them identify variances and take appropriate measures to improve financials.

Using configurable resource management software, managers can schedule training slots and manage training courses effectively.

This will eliminate the need for last-minute hiring of a high-cost resource or reduce the chances of firing due to skill obsolescence. 

All these features of the resource management tool collectively help reduce project resourcing costs.

Conclusion: One of the pillars of a successful project is efficient cost management, as it facilitates progress and yields better project outcomes.

The abovementioned techniques can help managers meet all project deadlines on time and within budget when coupled with advanced resource management software. .

So, what strategies do you implement to reduce resource costs? 

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