Introduction:
The purpose of this blog is to analyze how a small company can reduce the cost of implementation of a project, through the usage of a Cost Management (CM) framework.
The research uses an inductive approach built on qualitative data that is gathered through the following means: unstructured interviews; direct observations and documentation. The CM framework is applied to analyze the costs of the project that are used by the company. The data is analyzed by using the SWOT analysis approach.
Project management is commonly defined as the process of accomplishing a certain task. In order to achieve the goal of the project certain tools and techniques (such as CPM and matrix organization) could be used. Considering the project task, this is usually viewed as having the features of being unique, and complicated and must be completed during a certain time scale, within the control of time, cost, and quality, and need to be supervised closely so the result should be optimized.
The main purpose of the cost management system is to maximize profits. In order to maximize profits, the company has to face and succeed in a competition that comes from either domestic or international companies and to develop itself continually. In a nutshell, the two primary objectives to provide a cost management system are global competition and continuous improvement.
There are three main functions to support companies’ cost system performance. First, a financial reporting function which is the system that presents production expenses in reports covering each period of interest such as the cost of goods sold and in inventory. Secondly, the cost system can give the employees and operators economic feedback, such as process efficiency and expense control. Finally, according to cost information, companies can estimate the costs of products, services, activities, and customers for better control.
The main questions are as follows:
● How can the leader of a small company use the cost management concept to improve its project performance?
● How can a small company control indirect costs in project implementations?
● How can project managers of a small company improve the quality of work and simultaneously keep the costs at an acceptable level?
Cost Management Systems:
A cost management system needs support and commitment from senior management; the worker's involvement in different positions; and a self-perpetuating system of improvement which might help the company to improve value-added activities and decrease non-value-added activities.
- The Self-Perpetuating System of Improvement (SPSI)
This figure presents a model of a Self-Perpetuating System of Improvement, which indicates that two goals are required to improve value-added activities and to decrease non-value-added activities. In order to achieve the goals, the model of SPSI may start with Activity Based Costing, a comprehensive system that includes: Activity-Based Management, Total Quality Management, Just-in-Time System, and Process Improvement.
Value-added activities are considered as something that can add value to products in order to satisfy what the customer needs. Some activities can, however, be considered as non-value added even though these might be essential to a company such as training. Companies have to train their workers to be more efficient and effective. Without a doubt, the training activity is not related to the products to improve consistent quality that is expected by the customer all the time. So the training activity can be treated as non-value added per se although essential for the outcome of the project.
Activity Based Costing
Activity-Based Costing is developed from the traditional cost system to improve the accuracy of collecting cost data. Research on ABC and its applications has been focused on organizations in developed countries mainly, only little has been implemented successfully in organizations in developing countries. ABC not only measures the cost and performance of activities, resources, and cost objects but also points out the causal relationship between cost drivers and activities. Even though the ABC system is functional, it should not be considered as an ending process. It should be clarified, that information developed and data collected when adopting the ABC system must be used to reach the goals of SPSI, as discussed above. There are some important techniques such as Activity Based Management, Total Quality Management, Just-in-Time Systems and Process Improvement that could be used.
The commitment of Top Management
The SPSI system cannot be set up without any active support of the top management of a company which implies that the commitment of Top Management can be considered a prerequisite to implementing a strategy successfully. The Commitment of Top Management is necessary for continuous improvement. It is required to set up a team with members that consist of different departments of a company which can suggest, or process, new ideas or changes that are made inside the company when the company strategically is implementing a new project.
SWOT Analysis
SWOT analysis is used across industries to measure Strengths, Weaknesses, Opportunities and Threats of a business venture. Although it’s mainly used to assess business ventures, it can also be easily used to measure almost anything that is influenced by external and internal factors.
