Three Perceptions Of Project Cost: A Summary

Main Point

Describe about the Three Perceptions of Project Cost for A Summary?

The article title “Three Perceptions of Project Cost”, authored by D.H. Hamburger provides an insight into one the most important aspects project management:  the costs associated with any project (Hamburger, 1986). The article provides a detailed analysis of the various costs that the project manager has to consider, besides considering the perspectives of the stakeholders of the project in regard to the management of these costs.  Through this report, we aim to summarize the key points that the author has made discussions on and the emphasis would be put on the efforts made by the accountant, the controller and the project manager in managing the costs associated with any project.

Main point: The author is of the opinion that each element of an organizational project perceives the associated costs in a different manner. While the project manager considers his ‘on cost’ responsibilities to be simply completing the project within the predefined time line and budget, most of the other departments are less concerned with maintaining their commitment to allocated fund and are more concerned with the economic feasibility of the project (Hamburger, 1986).  The author is of the opinion that since the point of identification of the costs eventually affects the progress and the quality of the project, in-depth knowledge regarding the various cost perceptions and the methods of controlling such costs is essential for efficient project management process (Gemünden,  2014).

Accountant’s view of project cost:  The financial report of the project, as prepared by the accountant, takes into consideration the expenses made during the project and the revenue generated from the project.  The costs or the expenses associated with a project are considered only when the receipts for any purchase are identified: on the hand, the revenue generated is considered after the completion of the project (Gemünden, 2014).   Needles to say, such one-time calculations result in the generation of  ambiguous financialfigures.

In order to avoid such discrepancies, in the case of long-term projects, accountants utilize the custom designed formulas for generating the profit and loss reports:  the utilization of such formulas help in calculating the expenses made and revenue generated from a project on the basis of the progress made so far (Hamburger, 1986).  Thus, it can be said that the project accountant is concerned the financial profits and loss of the business.

Controller’s view of project cost:  The finance department, headed by the project controller is primarily concerned with arranging the funds that are essential for paying the bills of the services or products procured for the project (Pollack & Adler, 2014). While the generation of purchase orders only means ‘future expenses’ for the controller, it is the generation of invoice orders that asks for the initialization of the payment procedure. The finance department and the project controller is concerned with this very aspect of the project;  that is making arrangements for the payments, or the inflow of the cash and initiating the payment process or the cash outflow.

Thus, it can be concluded that the controller perceives the costs associated with the project in terms of the flow of cash in and out of the project.

Manager’s view of project cost:   In the ideal case, project managers should be capable of understanding the differences between the costs perceived by the other elements of the project and   be asking   for a record maintenance system that operates in accordance with commitments made by the project team to the client side (Gemünden, 2014).   However, in reality, most project managers consider completing the project within a predefined budget to be their sole responsibility towards the organization.

Other costs:  The project manager is primarily concerned with meeting the commitments that have been made to the client (Pollack & Adler, 2014).  However, besides completing the project within a predefined budget, the project manager should also remain cognizant of the under mentioned costs:

The total cost of the project can be reduced by the utilization of trade-off studies in the project initiation phase.

The inclusion of excessive safety factors should be avoided (Gemünden, 2014).

The execution of the project and the contingency budget of the project should be controlled solely by the manager for saving costs.

The manager should also oversee the procurement and the change management process of the project (Hamburger, 1986).

The above mentioned costs are generally considered as the ‘project costs.’ Besides the above mentioned costs, the project manager should oversee the financial costs associated with the project and the profit and tax expenses of the project so to have a control over all the costs associated with the project.

References

Gemünden, H. G. (2014). Project Management as a Behavioral Discipline and as Driver of Productivity and Innovations. Project Management Journal, 45(6), 2-6. doi:10.1002/pmj.21466

Hamburger, D. H. (1986). Three Perceptions of Project Cost: Cost is More Than a Four Letter Word.

Pollack, J., & Adler, D. (2014). Does Project Management Affect Business Productivity? Evidence From Australian Small to Medium Enterprises. Project Management Journal, 45(6), 17-24. doi:10.1002/pmj.21459