Cost Contol – Case Study Example

COST CONTROL Cost control is the process of reducing and managing expenses in a business involves identifying the costs and assessing whether they are affordable and reasonable. If they are, then the business looks for methods for instance cutting back.For a company to earn profits it should not only maximize revenue but also minimize costs (Steyn 77).
There are two basic types of reserves that project managers should become familiar with. These are management reserve and contingency reserve.
Contingency Reserve
This is a time reserve used to manage unidentified future risks. It isn’t a random reserve as its estimated based on Decision Tree Method or Expected Monitory value. It is the responsibility of a project manager to control this reserve. He has power to either use it when any known risk arises(Baccarini 6).
Management Reserve
This is also time reserve that manages unidentified risks.However, unlike contingency reserve Management Reserve isn’t a projected reserve; it is determinedaccording to the policy of the organization. This reserve is controlled by a person who isn’t in the project team but in the management. In case of a risk occurring, approval has to be sought by the project manager from the management for it to be used (Steyn 78).
Instances when subtask estimates would not be rolled up to their parent tasks
When the actual cost exceed the estimates-subtask estimates will not be absorbed for their parent task if their cost exceed the estimated cost e.g. it is estimated that cost of constructing 10km road is 20 million. After a month 1km of the road is constructed and utilizes 2.5million. This means the 10km will consume 25 million instead of the estimated 20 million.
When there is unrealistic relationship between the tasks. If the relationship between the subtask and the parent task isn’t realistic then the subtask estimates will be abandoned.
Steyn, Herman. "Project management applications of the theory of constraints beyond critical chain scheduling."International Journal of Project Management 20.1 (2002): 75-80.
Baccarini, David. "Understanding project cost contingency–A survey." Conference Proceedings of the Queensland University of Technology (QUT) Research Week International Conference. 2005.