7 Ways to Reduce Cost in Project Management

7 Ways to Reduce Cost in Project Management

You’ve put every possible effort into preparing a thorough estimate for your project. You’ve cut corners and accounted for unexpected costs. But now, when the project is halfway through completion, you’ve been ordered to trim the cost further.

You’re stuck. How do you do it? Most importantly, how do you cut the budget without compromising quality? Is it possible to rework the starting idea into a successful outcome and still deliver on your strategic objectives?

Deploying effective cost reduction methods in project management is no easy feat. Don’t feel rejected or frustrated. Instead, get prepared! Note that managing a project budget is a continuous process, and even if the initial estimate has been approved, changes are going to happen midway through the project.

It’s good to be informed about time-tested cost reduction techniques in project management to act early and prevent budget slippage. But before we delve in, let’s, first of all, define two terms to clear any possible confusion.

Cost-cutting vs. cost reduction: what’s the difference?

Cost-cutting is applied to reduce expenses directly and boost the business’s bottom line. It’s a reactive approach to cost management. Cost reduction, on the other hand, is more about optimization and better aligning. It’s a holistic view of the project lifecycle, where the traditional approach is replaced with rethinking requirements, freeing up resources, and increasing efficiency. To adopt proactive tactics, you’ll need to have a clear strategy before making a decision.

As a preparatory step, you’ll need to classify costs into so-called ‘good’ and ‘bad’ ones. Good costs serve business objectives, create value for the customer, and enable growth, while bad costs destroy value and waste resources. With a careful classification, you’ll red flag the costs that do harm and focus on those that contribute to business advancement.

Let’s now get acquainted with seven quick tips to help you implement sustainable cost reduction methods in project management and address cost drivers at their core.

1. Ensure proper allocation of resources

Resource planning is the critical process of identifying the resources required to execute and complete a project. It’s done at the beginning of the project before any actual work begins because without proper resource allocation, you run the risk of causing budget overrun.

People, equipment, and time are the key areas you’ll need to look into. That’s why identifying and assigning the right resources during the project initiation phase is essential to delivering projects within time and budget.

For a smooth process, centralize resources and information. This will allow you to balance resources, avoid duplication, and reduce resource idling.

Here is a pro tip: assess the impact of time on resource requirements. For instance, a critical resource may be available for only a limited period of time which means you’ll need to adjust your project’s schedule accordingly. Conversely, if a resource is going to be available only at a later stage of the project completion, you might need to extend the timeline to accommodate the availability of the resource.

2. Mentor and retrain your team

Resources are now optimally mapped and distributed. Every possibility of cost reduction has been carefully considered. The next step for project managers is to develop a detailed work breakdown structure (WBS). Look at each subtask and identify how many people with what type of skills are needed to finish the task. Remember that assigning under-qualified resources will cause delays in delivery and compromise the quality of results.

Effective management avoids hiring resources at the eleventh hour. If you encounter workforce shortage at any stage of the project lifecycle, retraining can be a smart solution. Explore the in-house potential before you reach out to outside consultants. For instance, instead of hiring an independent contractor, you may consider training your team to get them up to speed.

Replacing expensive resources with cheaper ones is a mere cost-cutting strategy that isn’t sustainable. Therefore, consider having your more experienced team members mentor the folks who need that little push to unearth their full potential. There is an added benefit here. Upskilling junior resources will increase organizational agility and drive motivation further. Research is available to back up this strategy. Recent studies by Gartner indicate that, especially due to the evolving COVID pandemic, companies will have to adjust career pathing strategies and make targeted talent investments to witness continued growth and outperform competitors.

Project managers may assign the highest skilled personnel to high-priority tasks. Avoid this trap. When you think about cost reduction techniques in project management, you should consider distributing high-skilled resources across all projects. First, this will minimize the need for hiring expensive independent contractors. Second, this will provide a unique opportunity for other team members to get valuable professional guidance. Keep in mind that team-oriented and forward-looking tactics are always rewarded in future projects.

3. Outsource on an as-needed basis

Start by exploring the non-core activities of your business. You’ll most probably find tasks that don’t add sustainable value to your business and are limited to a single project. These activities are the first ones to be outsourced to lower-cost specialists.

Furthermore, you may lack a specific skill locally. Have a well-thought-out policy in place to be able to leverage global resources. Low-cost resources can temporarily fill in the gap and help you control the budget.

And what if a critical resource leaves the organization? Last-minute hiring may cause disruption, create chaos, and compromise the bottom line. If you have a predefined outsourcing process and know what factors influence successful outsourcing, you’ll prevent failure in the event this critical resource decides to leave.

4. Analyze variances between forecasted and actual spending

The time rolls on. You continue overseeing the entire project through cost control and risk assessment.

When you search for cost reduction methods in project management, you should acknowledge that periodically tracking each milestone is absolutely crucial to prevent discrepancies. Rigorous comparison of the actual spending against the baseline budget can mitigate budget overrun and help you spot opportunities for cost reduction both in advance and on the go.

The greater the deviation between initial estimation and actual costs, the less likely it is for your project to succeed. What’s more, going over the budget affects project profitability and may even jeopardize the project’s completion (you might have to seek additional approval from different stakeholders to continue your work).

5. Account for hidden and unexpected costs

Here is an example. You had your product catalog ready and sent to printing only to discover that three products have the wrong discounted prices on them! Luckily, you don’t have the entire catalog printed yet, and there is a chance to replace that one page. Do you have a budget allocated for such mishaps?

From minor incidents to major rearrangements, last-minute hick-ups are inevitable. They do cost money, but if you aren’t prepared to handle them, those unexpected costs can break the deal and even affect your baseline. That’s when the golden rule comes into play – reserve 10-20% of the budget for unpredicted circumstances. Have your plan B. Projects rarely go without any deviations. To deliver the project on budget, account for an appropriate amount of money for twists and turns, unplanned hiring, or changes to the project scope.

6. Seek process improvements

Look for and detect money-saving process changes. Think critically about which processes can be standardized and stabilized to prevent major variations, establish capability, and prevent defects.

Ask your team: can we achieve our final goal differently? Is there rework, double-handling, or backflow that we can avoid and reduce cost? For example, is it possible to do work remotely instead of requiring office visits? Is it possible to accomplish this task through a joint session in a week rather than in three weeks using the predefined method? Dive deep, analyze, and come out with solutions that you didn’t think were possible.

7. Reduce project scope

You’ve checked and rechecked to ensure the project cost is accurately calculated, reflects the reality, and aligns with the business strategy. However, the overall cost remains a concern…

It’s time to try another cost reduction technique in project management: reconsidering the scope of the project. Is it too broad, or is there anything you can negotiate? Is there a task that is specifically costly and can be cut back? Is it possible to leave out a particular phase in a project?

Although the scope of the project was determined at the initial stage, you may still spot certain tasks that can be cut down. Start negotiations with different stakeholders involved – investors, vendors, partners, customers, etc. Single out the most critical processes and goals and see if any of the smaller, little-value requirements can be omitted without affecting the margin you aim for. Find out if you can achieve the same results with fewer resources, fewer people, or less expensive technologies.