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What Is Cost Management?

Cost management allows businesses to keep track of their budget over the course of projects and insure their customer is receiving value.
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  • Written By: Adam Hill
  • Edited By: C. Wilborn
  • Last Modified Date: 23 August 2014
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Cost management is the process by which companies control and plan the costs of doing business. Individual projects should have customized plans for this process, and companies as a whole also integrate cost management into their overall business model. There is no single accepted definition for this term, because it has such broad applications and possible strategies. When properly implemented, this process will translate into reduced costs of production for products and services, as well as increased value being delivered to the customer.

For a company's management to be effective overall, cost management must be an integral feature of it. It is easiest to understand this concept if it is explained in the context of a single project. For instance, before a project is started, the anticipated costs should be identified and measured. These expenses should then be approved before any purchasing occurs. During the process of completing a project, all incurred costs should be noted and kept in a record of some kind, to help ensure that the costs are controlled and kept in line with initial expectations, to the extent that this is possible.

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Taking this approach to cost management will help a company determine whether they accurately estimated expenses at first, and will help them more closely predict expenses in the future. Any overspending can also be monitored in this way, and either eliminated in future projects or specifically approved if the expense was necessary. Cost management cannot be used in isolation; projects must be organized and tailored with this strategy in mind.

Starting a project with cost management in mind will help to avoid certain pitfalls that may be present otherwise. If the objectives of the project are not clearly defined at first, or are changed during the course of the project, cost over-runs will be more likely. If costs are not fully researched before the project, they may be underestimated, thereby inflating the expectation of the project's success unrealistically. Construction projects are subject to their own particular challenges; these can include constraints in the form of laws and regulations that must be planned around.

If the project is completely and clearly defined, this will facilitate effective management of the costs it will incur. Effective cost management strategies will help a team deliver a finished project within the allocated budget, while also making it as valuable as possible to the company. There is always the possibility of unexpected costs, but preparation in the form of cost management will likely make them much easier to deal with when they occur.

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Discuss this Article

anon314836
Post 11

Thanks. This is exactly the subject of my diploma work.

truman12
Post 10

I used to manage the kitchen in a restaurant and cost management was one of our biggest concerns.

We had to control food costs, employee costs, and the costs of dips in quality and consistency.

We were a busy, high volume restaurant that had very low price points so we had to keep costs in the kitchen as low as possible. It was a constant challenge.

chivebasil
Post 9

Are there any versions of small business cost management software that I can download for free? It does not need to be the biggest or the best, just something that can help me keep track of the basics.

Ivan83
Post 8

I run my own small business selling custom printing services. We have five employees and a small shop. Cost management has been one of our biggest problems. We do good business, but I feel like we bleed a lot of money with mistakes and wasted materials.

Can someone point me to some good resources for small business cost management? Thanks!

anon297450
Post 7

Is telephone service an investment or not, and why?

aaronsc45
Post 2

Great article outlining what IT cost management is and the benefits of good practices.

anon79734
Post 1

excellent article on this topic.

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