2020 taught us that we should be prepared for the unexpected. Unfortunately, at the beginning of the year, we had not anticipated that it would come to this, with our way of life changed and with no way of knowing when we’ll go back to normal. Even though most of us faced (and still face) struggles due to a myriad of factors, such as lack of contact with friends and family, job loss, or deteriorating mental health, 2020 was especially hard for business owners.
The COVID-19 pandemic disrupted old supply chains, making it difficult for businesses to provide services even if there was a demand for them. Many types of companies had to start selling products online instead of in brick-and-mortar shops, and the percentage of online purchases increased noticeably.
Due to the uncertainty and many possible ways in which the situation could further develop, many business owners started focusing more on cost management. Although in those trying times, reducing costs is often a matter of staying afloat or not, we could also use some of the lessons we learned in a less extreme situation. First, we’ll explain what project cost management is, and later we’ll go over some of the easiest-to-implement ideas that could help you reduce the cost of a project.
What Is Project Cost Management?
Project cost management is focused on cost estimation and planning, later on monitoring the project costs, and finally, assessing whether the estimations were accurate, which can help to create a cost management plan for other projects in the future. The primary goal of the project cost management is to avoid exceeding the budget, which, given the multitude of factors that need to be considered, is not an easy task.
Even if the planning process is thorough and the calculations done in this phase are accurate, there’s no guarantee that the situation will not change later on, e.g., as a result of the increased price of the materials, disruption of supply chains, issues with communications, or change in demand.
Because of that, you might need to find a way to reduce the overall costs of a project to stay within the budget. Though there is no one-size-fits-all solution, as it should depend on the type of project and the situation at hand, we have prepared a list of ways to reduce costs for your business.
Reduce the Costs of Supplies
Finding a better offer for office supplies is one of the simplest methods to reduce the project cost that could prove useful in project management. Sure, you won’t cut the costs significantly by purchasing paper and pens from a different supplier that’s slightly less pricey, but consider other things that are required as well, such as furniture, laptops, or monitors.
Do you need top-grade equipment, or perhaps would your employees fare similarly well if you chose a less expensive alternative? You could even go further down this road and buy used office equipment. Just make sure that it’s in a good-enough state, or you might end up paying more in the long run.
Lower Marketing Spending
Though providing services and products that are better than those of their competitors is the goal of every company, it is not, by any means, enough – the potential customers have to hear about them too, or you’ll simply go bankrupt. Companies usually allocate between 5% and 12% of their revenue on marketing spending, with the percentage primarily dependent on the size of the company.
Without a significant portion of the funds dedicated to marketing, you won’t be able to sell your products in large quantities and find clients interested in your services. However, despite it being the lifeblood of your business, it doesn’t mean that you couldn’t lower the expenditure on marketing as a part of the project cost management while not weakening the impact of your strategy. How is that possible? The solution is simple: focus more on digital marketing.
If you are running a small business, then purchasing TV or radio ads might be simply too expensive. On the other hand, when it comes to social media advertising, you can start your marketing efforts at a lower spending threshold. At the same time, you’ll be able to specifically target users based on their interests and browsing history so that you’ll have a higher chance of convincing them to buy your products.
However, Facebook Ads or Google Ads are just some of the most popular methods that could help you with cost management. Who knows, perhaps the project costs could be reduced with even better results if you partnered up with social media influencers? If you’ve been using radio ads, billboards, and leaflets as the go-to marketing methods for the last few decades, those newer alternatives might seem silly and like a waste of money.
However, we must note that people from all age brackets spend more time in the digital world than a decade or two ago, and this trend will progress only further. Social media platforms such as Instagram, Facebook, Youtube are frequented daily by hundreds of millions of internet users (or more than 1.5 billion in the case of Facebook).
Because of that, contacting someone with a sizable fanbase on any of those platforms that would be willing to help you promote your services could prove more efficient than renting billboards or buying airtime on local TV channels, and you could end up lowering the project cost.
At the same time, it is vital to consider the type of services that your business is offering, as some marketing channels might work better with different age groups. If you want to promote walkers for the elderly, TikTok influencers might not be as effective as radio or newspaper ads.
Office for Your Business in 2021
Though telecommuting is nothing new, not that long ago, it was only relatively common in IT jobs. However, COVID-19 pandemic changed the situation dramatically. According to a Gallup poll, in November 2020, one-third of workers in the United States worked only remotely, whereas around half a year earlier, a similar poll had shown this number to be higher – 51%.
Although some of the companies have since then reverted their previous policies, the popularity of working remotely won’t go back to the state from before the pandemic. Because of that, many companies have found out that they don’t need large offices, as a significant portion of their employees has started working from home full-time.
Recently we have witnessed an exodus of tech companies, such as Oracle, Tesla, or Hewlett Packard from California to Texas, with high taxes but also expensive costs of living given as the reasons. However, even if you are running a company that doesn’t belong to a tech sector, but remote work is possible, then you might encourage your employees to start working from their homes. This way, they would save time, as they wouldn’t have to drive each day to and from work.
At the same time, this development would also help reduce the expenses and stay within the project’s budget. Of course, relocating to another office (as probably you’d want to still have an office, albeit smaller) is not a decision to be made lightly, but given the savings that would result from it, you should consider it as a way to reduce project costs.
It is true that when it comes to the productivity of remote workers, the findings are mixed, with some workers struggling to keep their motivation levels high when their family members are chatting nearby. However, the only way to test that would be to temporarily implement telecommuting and evaluate the situation later. If the results are satisfactory, you could use this method to lower the project management cost.
Hire Temporary Workers
The demand for services of some types of companies, e.g., those concerned with tourism, farming, but to a smaller extent also construction or retail, varies depending on the time of the year. Thus, a different number of employees might be required to handle the workload in April and different in September.
If you don’t hire enough people to handle the workload when the demand for your company’s services is the highest, your organization will start malfunctioning, and your employees will become overworked. On the other hand, if you hire more people and keep the number of your employees steady throughout the entire year, you’ll waste funds and exceed the budget without bringing in any additional value.
The solution that would reduce the costs while allowing your business to operate at full capacity? If you are looking for additional workers to help on a farm, virtual assistant, cleaning staff that would ensure that the hotel stays clean in high season, or perhaps need help with answering calls from your clients, consider hiring temporary workers.
This way, you also wouldn’t have to deal with the hiring process, which would require resources that could be spent elsewhere, as a temporary work agency would do the job for you. However, you should consider this solution also if your company is rapidly expanding and you need to scale-up quickly. Aside from fixing your problem, acquiring workers with a suitable skill-set through a temporary work agency would give you the flexibility to adjust the number of your employees quickly.
What’s more, this method would make the cost management process more effective, as you would avoid wasting your budget. If it turns out that some of the temporary workers prove to be a great addition to your team, you might hire them full-time, which would additionally help you reduce the cost of the project, as you wouldn’t risk hiring an unreliable job candidate but someone whose skills you wouldn’t question.
Train Your Employees
Most of the methods found in this article that could prove beneficial in project management are concerned with cutting costs by getting rid of unnecessary expenses. However, if we consider that your employees are the most important aspect that affects the project budget, you might consider scheduling additional training for your employees. It might temporarily increase the project costs, but it will make the project management cheaper in the long run.
Depending on the type of your business, the consequences of your employees’ mistakes will vary, but it’s safe to say that your project would be better off if those mistakes could have been avoided in the first place. Sure, in some cases hiring other people will be the only adequate solution, but perhaps additional training would improve the skills of your employees, thus making them more productive and better at fulfilling the responsibilities of their job. Project cost management sometimes involves focusing on saving costs in the future, even if it might mean additional spendings now.
Running a company has never been stress-free, but the COVID-19 pandemic has greatly increased the severity of the difficulties with which the business owners have to struggle. The uncertainty about the future restrictions that could make the functioning of their business impossible or at least difficult, coupled with the knowledge that they could lose their life’s work at a moment’s notice, make the situation even more stressful.
However, although no one knows what’s yet to come, there are ways to decrease the cost of operating your company and increasing your chances of staying afloat. Cost management is the process that involves planning, cost estimation, and later monitoring of the project budget. Unfortunately, due to numerous factors that influence the project’s budget, staying within the earlier cost estimation might prove difficult. In this article, we have included a list of methods that could be used in project cost management without leading to chaos in your organization.