Project budgets can vary from $5,000 to whatever size a company can handle. The problem companies have with capital projects is how to allocate the scarce resource (money) to the maximum benefit of the company. Some factors that go into choosing which projects get done include what the competition is doing, the company’s long-range plans, return on investment (ROI), and risk. ROI is critical to making a decision, as a company is only going to undertake a project if it can make a return on its money by doing it. Think of all the projects you know about that were over budget. What affect did that have on the ROI and did it add value, or cost the company money?
As you know, it is very important to keep a project on track and within budget. It is imperative that costs be controlled during all phases of a project, and you can only control costs if you know what goes into making up the total project budget. You have to set up a project so that costs can be easily identified and controlled.
Project cost control is a lot of work and requires a team effort. In theory, project cost control sounds easy but it is a lot more difficult to put into practice, especially if basic financial information is not correct.
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