Cost management, a vital aspect of cost financial and management accounting, assists businesses in preventing budget overruns by offering more accurate predictions of forthcoming expenditures. This method is widely used across individual projects and overall business operations. During project planning, expected costs are estimated and approved in advance. Expenses are diligently monitored throughout the project to align with the cost effective management plan. Post-project completion, a comparison between actual and predicted costs refines future cost predictions and budgeting accuracy.
This process involves four main steps:
It's important to distinguish between cost management techniques and cost control, as they are often confused. Cost management involves estimating financial activities and evaluating project data, while cost control aims to adjust activities periodically using past financial data. Cost management spans the project's phases, while cost control is triggered by financial discrepancies and concludes upon detecting regular financial activity.
Cost management brings numerous benefits, including the reduction of overspending by keeping budgets on track & optimizing business expenses. It encourages effective planning by identifying areas that need improvement, providing insights into resources and processes, facilitating faster and better decision-making for current and future projects. Continuous monitoring and reporting contribute to long-term financial health, helping organizations maintain overall budget control & strategic cost analysis. Moreover, it offers real-time metrics and suggestions for cost-saving practices by certified management accountants, especially in cloud services.