Challenges of Cost Management in Complex Projects

Jaakko Kujala,Tim Brady,Jaakko Putila

doi:10.5539/ijbm.v9n11p48

Abstract

Contingency approaches for understanding complexity in projects are intended to help academics and practitioners make distinctions between different types of projects to better understand the relationship between practices and outcomes when applying different project management processes. In this paper, we build on existing research on complex products and systems (CoPS) to address the challenges of managing costs in projects of varying complexity. Based on a qualitative case study, we identify several challenges in performing various cost management functions related to cost estimation, cost control and monitoring, revenue recognition, profitability analysis and margin calculation. The cost management functions are impacted by the large size, complexity, uncertainty and uniqueness of those projects.

Highlights

Numerous tools, techniques, guidelines and methodologies have been developed over the years to help manage projects and programs
The wide project scope sets challenges for the sales engineers who are responsible for compiling the contract calculations
This is demonstrated by the project manager of case project 2, who stated, “When we are delivering products and services which have not been delivered ever before, cost estimation gets harder.”Complex projects are unique and complicated, so historical information for estimating costs is not available and the amount of technical expertise required to understand the project is huge

Summary

Introduction

Techniques, guidelines and methodologies have been developed over the years to help manage projects and programs. Major projects and programs across a range of sectors such as IT, defense, financial services and construction continue to be dogged by poor performance and failure to deliver the promised benefits (Economist, 2005; House of Commons, 2004a, 2004b; Ministry of Defence [MOD], 2004). There is little empirical research on how these complexity characteristics affect specific management processes. It is this gap that this paper seeks to address by examining the challenges of managing costs in projects of varying complexity. We try to answer the research question: How is cost management in projects affected by the project’s level of complexity?

Results

Discussion

Conclusion