Why is Cost Analysis Important to Project Management?

Why is cost analysis important to project management? Well, that’s simple. Before a project gets underway, a developer needs to know a few financial metrics including:

  • What is return on investment?
  • And what type of timeframe will this investment come to realization?

The above are long-term focused goals. In the short-term, the developer would be considering cash management questions such as:

  • What is the initial equity requirement by the developer prior to loan funding?
  • What is his or her outlay of cash flow?
  • Is there a cash flow projection schedule?

Besides the physical construction of a building, financial consideration plays a major role in taking on a project. Questions like:

  • Where will the funding come from?
  • Or, how will the contractor and subcontractors get paid on a timely basis?

The above are valid and important questions which require thought before breaking ground. Fortunately, a quantity surveyor has experience in providing advice for budget review.

One major issue that arises with cash flow, cost analysis, and project management, are when there are deviations from the original plan. While deviations do cause concerns, one must remember that these do happen, especially when costs become greater than the original forecast. Project management plays a major part of cost analysis because while unforeseen costs are common in construction, being able to identify and quickly problem solve unforeseen circumstances limits project delays, and potentially, additional costs.

An experienced developer and project manager will likely include a budget to claim unforeseen costs to avoid any cash depletion within the overall project budget.

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