Cost management is the process of effectively planning and controlling the costs involved in a business. It is considered one of the more challenging tasks in business management. Generally, the costs or the expenses in a business are recorded by a team of experts using expense forms.
The process involves various activities such as collecting, analyzing, evaluating and reporting cost statistics for budgeting. By implementing an effective cost management system, a company’s overall budgeting can be brought under control.
Cost management is employed by many businesses as an integral part of business management. Cost management is also considered a form of management accounting that helps to identify future expenditures in a business to reduce budget overages.
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When cost management is applied to a specific project, the expected costs in the business are analyzed in the beginning phase of the planning period. The project manager then approves the predicted expenses in purchasing the materials required for the project.
The costs and expenses are recorded and monitored during the project execution period to ensure that the cost is in line with the actual cost management plan. Once the project is complete, the actual costs are compared with the predicted costs, which will help in predicting future expenses.
Some of the advantages of cost management include:
- The ability to predict a project’s future expenses and costs
- The maintenance of a central record of all predicted expenses
- The ability to ensure that costs are approved before purchases are made
- The ability to control a project’s expenses Source