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Definition

cost management

Cost management is the process of planning and controlling the budget of a business. Having a good cost management system in place will allow organizations to better estimate and allocate budget. Cost management is a form of management accounting that allows a business to predict impending expenditures to help reduce the chance of going over budget. 

Many businesses employ cost management tactics for specific projects, as well as for the over-all business model. When applying it to a project, expected costs are calculated while the project is still in the planning period and is approved beforehand. During the project, all expenses are recorded and monitored to make sure they stay in line with the cost management plan. After the project is finished, the predicted costs and actual costs can be compared and analyzed, helping future cost management predictions and budgets.

Implementing cost management structures

Implementing a cost management structure for projects can help a business keep its over-all budget under control. The first step in this is resource planning. This includes assessing resource requirements for future projects, the work that will go into them, and who or what is going into that work as well as time durations. With this information, a business can begin estimating the costs of the required resources. The business can then allocate resources. Cost performance should be able to be measured and assessed.

Variances from cost baselines should be measured. If there are any differences between what is expected and what is measured, then corrective measures can be enacted to avoid going over budget. Changes to the process should also be measured.

Several business intelligence (BI) programs, such as Oracle Hyperion, offer cost management software to help businesses monitor costs and increase profitability. While the software may help, it is not imperative that software is used when executing a cost management plan.

Vendors may refer to cost management software applications as cost accounting, spend management or cost transparency products.  

Learn more about cost management:

Cost Management Analysis Guide
Bernie Klinder describes how standardizing hardware to create a common desktop environment can keep costs down in a well-managed Windows environment.

How a cost management analysis affects Windows Server 2008 migration
In order to calculate ROI for a Windows migration, you need some "hard savings numbers." In other words, you need to find areas where you can cut existing costs in your cost management analysis.

Spend management software, cost transparency tools help CIOs cut costs
For enterprise organizations with sprawling global operations, spend management software and cost transparency tools can help CIOs gain insight into spending and cost-cutting opportunities.

IT project management: The cost estimating process

The cost estimating process will begin by breaking the project into work phases such as design, engineering, development and fabrication.

This was last updated in September 2020
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