Case Study Three Perceptions Of Projec
THREE PERCEPTIONS OF PROJECT COST
♦This is a shortened version of the “Three Perceptions of Project Cost—Cost Is More Than a Four Letter Word” Article. You may find the full article in Project Management Journal, June 1986. ©1987 by the Project Management Institute.
Project cost seems to be a relatively simple expression, but "cost" is more than a four letter word. Different elements of the organization perceive cost differently, as the timing of project cost identification affects their particular organizational function. The project manager charged with on-time, on-cost, on-spec execution of a project views the "on cost" component of his responsibility as a requirement to stay within the allocated budget, while satisfying a given set of specified conditions (scope of work), within a required time frame (schedule). To most project managers this simply means a commitment to project funds in accordance with a prescribed plan (time-based budget). Others in the organization are less concerned with the commitment of funds.
The accounting department addresses expense recognition related to a project or an organizational profit and loss statement. The accountant's ultimate goal is reporting profitability, while positively influencing the firm's tax liability.
The comptroller (finance department) is primarily concerned with the organization's cash flow. It is that person's responsibility to provide the funds for paying the bills, and putting the unused or available money to work for the company.
To be an effective project manager, one must understand each cost, and also realize that the timing of cost identification can affect both project and corporate financial performance. The project manager must be aware of the different cost perceptions and the manner in which they are reported. With this knowledge, the project manager can control more than the project's cost of goods sold (a function often viewed as the project manager's sole financial responsibility).
♦This is a shortened version of the “Three Perceptions of Project Cost—Cost Is More Than a Four Letter Word” Article. You may find the full article in Project Management Journal, June 1986. ©1987 by the Project Management Institute.
Project cost seems to be a relatively simple expression, but "cost" is more than a four letter word. Different elements of the organization perceive cost differently, as the timing of project cost identification affects their particular organizational function. The project manager charged with on-time, on-cost, on-spec execution of a project views the "on cost" component of his responsibility as a requirement to stay within the allocated budget, while satisfying a given set of specified conditions (scope of work), within a required time frame (schedule). To most project managers this simply means a commitment to project funds in accordance with a prescribed plan (time-based budget). Others in the organization are less concerned with the commitment of funds.
The accounting department addresses expense recognition related to a project or an organizational profit and loss statement. The accountant's ultimate goal is reporting profitability, while positively influencing the firm's tax liability.
The comptroller (finance department) is primarily concerned with the organization's cash flow. It is that person's responsibility to provide the funds for paying the bills, and putting the unused or available money to work for the company.
To be an effective project manager, one must understand each cost, and also realize that the timing of cost identification can affect both project and corporate financial performance. The project manager must be aware of the different cost perceptions and the manner in which they are reported. With this knowledge, the project manager can control more than the project's cost of goods sold (a function often viewed as the project manager's sole financial responsibility).