What’s Involved in Cost Management? The Ins and Outs

Finding the right tools for teams throughout your business can be frustrating. How much should you be paying for a given solution? Which vendors can you trust? What’s an appropriate amount of time to spend on weighing and researching all of your options? All of that can impact your cost management. 

Cost management is a challenge in complicated markets where procurement teams need to work tirelessly to understand the ins and outs of what works best for the business. You might even have issues getting your procurement staff working cohesively with company stakeholders to lower costs without compromising on quality.

A recent study found that 50% of C-suite executives didn’t have an understanding of cost governance. That’s a lot of room for improvement that can have a real impact on your bottom line.

If you’re like many other businesses frustrated with disjointed cost management strategies, it’s time to reconsider your approach and see how you can efficiently obtain quality IT infrastructure and services. Keep reading to learn how you can transform your procurement and cost management strategies.

How Cost Works in a Business Context

All of us are familiar with how cost works. It’s the price we pay for the goods and services we use everyday. But the concept is a little more complicated in terms of business operations. Cost, while still measured in dollar amounts, can include any expenses taken on during the completion of a project:

  • Materials and resources
  • Services and infrastructure (particularly IT services)
  • Hours of labor
  • Staff allocation
  • Risk and opportunity

Cost management is naturally a way to manage costs for a project so that they don’t overrun and cut into the revenue at the end. It’s not merely about minimizing costs; it’s about obtaining goods and services at the right price that don’t compromise on the quality of the workflow.

What’s Involved in Cost Management?

Cost management is involved in almost every business project, from product development to maintaining daily operations. The steps included are:

  • Early planning: Standards are set beforehand to determine budget estimates for every part of the project. Resources are allocated to individual stages of the project depending on scope and requirements.
  • Collaboration: Stakeholders are consulted to talk about the plans and whether resources need to be reallocated or adjusted.
  • Guidance: During execution, the project directors look at actual costs and compare them to the expected plans. Corrective action may be necessary to keep costs in line.
  • Analysis: Project financial performance is analyzed afterwards to help make more informed business decisions in the future.

Cost managers have responsibilities that span the entire length of a project’s lifespan. In a way, they are constantly working throughout the company to check on costs and hold up ROI predictions.

Cost Management vs. Cost Control

There’s a subtle difference between how cost management and cost control work. Don’t confuse the terms, as they play different roles in project management.

Cost control keeps costs in check while the project is in progress by looking at the pre-planned expenses and the actual expenses. It involves implementing real-time corrective actions to make sure that the project stays within its budget and generates an expected return on investment.

You probably remember these types of corrective action mentioned earlier. That’s because cost control is largely one component of overall cost management.

How To Develop Procurement Strategies with Cost Management in Mind

With these definitions in mind, it’s time to think about how your teams can approach cost management to enable better financial security and more productive operations.

Finding Ways to Cut Costs without Compromising on Quality

In the past, brick-and-mortar stores would look to decrease overhead costs by looking at physical expenses like utility bills, energy costs, rent, and inventory space.

Today, we’re seeing a shift in perspective towards technology stacks. Companies with complicated operations rely on software solutions that often come from external providers: Internet, telephony and communication, networking tools, and various other applications.

What all these expenditures have in common is that they’re offered by a wide variety of service providers. Software asset management largely has to do with choosing the right software solutions that fit into the budget and have sufficient capabilities to serve the needs of internal workflows.

Picking Up on Technologies to Optimize Workflows

Technologies are integral to keeping up operational efficiency and ensuring that the business keeps up with the competition. A few examples that are well-known today include:

  • Cloud computing platforms that outsource server time and networking resources to third-party providers for the sake of scalability, accessibility, and cybersecurity. For example, most businesses choose to store data on cloud-based applications like Google Drive rather than on local machines. Studies have shown that 42% of IT budgets now include cloud infrastructure in order to cut down on costs.
  • Customer relationship management (CRM) platforms automate and improve interactions with customers. Capabilities here can include customer service, emails, social media, and other channels. CRMs essentially boost productivity and keep contacts organized so that agents can solve client issues and concerns faster and generally increase customer satisfaction.
  • Enterprise resource planning (ERP) tools handle aspects of the business like inventory control, accounting and financials, and other infrastructure-related considerations.

These essential components of most companies’ IT stacks must be considered carefully in order to keep operational costs low, no matter what type of projects the business undergoes.

Getting Staff Members on Board

An often overlooked aspect of cost management is how employees and staff contribute to it. Remember that time itself is considered a resource that can be managed as a “cost.” Teaching your employees to approach time management more effectively at work can improve revenue rates and cut down on expenditures.

In fact, you might even consider outsourcing certain tasks to third-party service providers so that internal teams can focus on more important aspects of the job.

Navigating the Challenges of Cost Management

Experienced project managers know how to estimate costs accurately based on past data and activities, but, in the real world, plans don’t always work out. Inaccurate cost projections can lead to budget overruns that threaten the ROI of the project. In some extreme cases, they can even lead to the company pulling the plug on development altogether citing lack of funds.

The other issue not many procurement managers think about is not how much money is available but rather how to spend it properly. Imagine your procurement management plan involves software procurement. What IT vendors do you trust to provide you with a quality solution? And what price points are appropriate for what you want to accomplish?

In a market flooded with service providers all with their own contract terms and conditions, it can be difficult and time-consuming to navigate all the options you have. Yet if you choose incorrectly, you can run into cost-related problems.

Why You Need to Understand the Applications of Cost Management in IT Procurement

When it comes to IT sourcing, making the right decision as a cost manager poses a few problems. Because of intense market competition, there are hundreds if not thousands of service providers and solutions out there to compare. And with new technologies coming out seemingly every month, it can be difficult to follow exactly what your business needs and what the best deals are.

That’s why so many companies turn to procurement consulting services. The reasons are manifold:

  • By working with a company that’s already experienced in information technologies, you take advantage of its expertise to find the best solution for your specific circumstances.
  • Procurement partners will have partnerships and contacts in the industry to get you in touch with the right provider quickly and easily.
  • Instead of having to spend all that time doing market research and comparing contracts yourself, you get the perfect deal without any fuss.
  • You gain access to savings opportunities that you didn’t know existed before, working wonders for IT cost reduction.

Are you ready to empower your teams with the hardware, software, and technical services they need to drive real business growth without cutting further into the budget? Reach out to 3Quotes today and discover how procurement transformation can improve your business.