Monday, June 16, 2008

Project Cost Control: Corrective Action

Have you ever developed the perfect project plan? One that was implemented without a hitch, and whose stated goals were completely realized? Not likely. That is why every project plan should include ways to correct any problems that pop up.

Corrective action is an important output of project cost control. It includes anything that must be done during a project to bring actual cost performance into line with planned costs.

You can use various types of corrective action to control project costs. Some typical corrective action activities are described below.
  • Subcontract work activities. For example, upon seeing that a project will overrun its budget, a project manager decides to subcontract parts of the project to a firm that has quoted a lower labor cost than it would cost the original project team to do the work.
  • Use less expensive resources. Another project manager decides to use less expensive resources, such as parts, raw materials, and supplies, because his project is running over budget. He also could re-assign work to less expensive laborers, as long as this would not diminish quality or productivity.
  • Find other ways to alter project scope. An example of this might be to extend the project finish date in order to reduce overtime costs.
  • Change the product specifications. If your project was running over budget, you might try to convince the customer to reduce the amount of work that was originally planned, or the quality of work that is expected, so that the project can be delivered within the original budget.
  • Increase or decrease the budget. Variance analysis of your project reveals that the original budget was unreasonably low. Your boss requests an increase in the budget to better reflect the true costs of the work, and to show a more accurate cost performance index.
While there is no standardized checklist to use when choosing corrective action, you can build your own checklist to follow. Ask for input from other project managers in your organization. They can tell you how they respond to different situations. Whether you implement a list of standard corrective actions as a company, or you simply develop your own plan, creating a standard to follow will greatly enhance the management of projects when things don't go according to plan.

There are some common concerns that should be addressed by every company in establishing a checklist or criteria for choosing corrective action. The company should ask such questions as:
  • Does this change the original plan?
  • Will any deadlines be missed?
  • Are any tasks adversely affected?
  • Are any cost overruns introduced?
By asking these questions, you are doing an impact assessment of the proposed action. Corrective measures should always be followed up to see whether they had the desired effect.

Remember, the root of the problem always should be identified before corrective action is chosen and implemented. By taking the appropriate corrective action when necessary, you can ensure that your project ultimately meets its goals.

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