Cost Management Steps to Be Taken Once the Project Starts

Below is a detailed, professional, AACE-aligned article on the topic:

Introduction

Once a project moves from planning to execution, cost management becomes a continuous, structured, and proactive discipline. According to AACE International, effective cost management begins the moment the project baseline is approved and continues until project close-out.
The following steps outline exactly what must be done to control costs, prevent overruns, support forecasting, and ensure project profitability.

1. Establish the Control Baseline (Cost + Schedule)

What AACE Recommends

As per AACE RP 10R-90 and RP 52R-06, the first step after project start is to freeze a time-phased cost baseline that includes:

  • Approved budget (BAC)
  • All authorized scope
  • Time-phased S-curve
  • Resource-loaded schedule
  • Milestones

Why it matters:

This baseline becomes the benchmark for:

  • Variance analysis
  • Forecasting
  • Earned Value calculations
  • Performance measurement

Without a proper baseline, cost control is impossible.

2. Setup Cost Control Structure (WBS → CBS → Cost Accounts)

As per AACE RP 39R-06 & 36R-08

Immediately after kickoff, create and align:

  • Work Breakdown Structure (WBS)
  • Cost Breakdown Structure (CBS)
  • Code of Accounts (CoA)
  • Cost Accounts with assigned budgets, cost owners, and dates

Outcome:

This ensures consistent tracking across engineering, procurement, construction, and commissioning.

3. Initialize Commitment and Contract Tracking

What AACE Says

Commitments include any future financial obligations:

  • Purchase Orders
  • Subcontracts
  • Service agreements
  • Long-lead items
  • Rental contracts

AACE emphasizes tracking:

  • Award value
  • Commitment value
  • Pending variations
  • Payment milestones

Outcome:

Early understanding of committed vs budget prevents surprise overruns.

4. Establish Cost Collection System (Actual Cost Capture)

Guided by AACE Cost Accounting Principles

Set up processes to capture actual costs:

  • Vendor invoices
  • GRN + MIR
  • Timesheets
  • Equipment logs
  • Petty cash
  • Subcontractor progress
  • Monthly accruals

Purpose:

Reliable actual costs = accurate variances and forecasting.

5. Start Monthly Progress Measurement (EV / VOWD / Milestones)

AACE EVM RP 84R-13 & VOWD RP 58R-10

Select progress measurement technique based on work category:

  • Earned Value (EV) for measurable activities
  • Weighted milestones for construction
  • Units completed for piping, steel, concrete
  • VOWD (Value of Work Done) for procurement-heavy projects

Why this is critical:

Progress measurement = foundation for EV, CPI, SPI, and forecast accuracy.

6. Perform Variance Analysis Monthly

AACE EVM Standard Practice

Key variances to analyze:

  • Cost Variance (CV) = EV – AC
  • Schedule Variance (SV) = EV – PV
  • Quantity variance
  • Productivity variance
  • Man-hour variance

Purpose:

Identify where and why costs deviate from the plan.

7. Implement a Cost Trend Program

As per AACE RP 65R-11

A cost trend program must be started early to track:

  • Scope changes
  • Productivity deviations
  • Market price changes
  • Delays
  • Rework
  • Vendor claim exposure

Each trend is logged, evaluated, and approved before impacting the forecast.

Outcome:

Trends show early signals of overruns before they appear in actuals.

8. Maintain Change Management Process

AACE Change Control Standard RP 86R-14

Once the project begins, change control becomes critical:

  • Identify deviations
  • Raise change request
  • Evaluate cost & schedule impact
  • Route for approval
  • Update baseline
  • Add to control budget

Purpose:

Avoid unauthorized cost growth.

9. Update Forecasts (EAC & ETC) Every Month

AACE Forecasting Methodologies

Forecast at Completion (EAC) is updated using:

  • CPI-based EAC
  • Composite CPI/SPI EAC
  • Manual bottom-up forecasting
  • Productivity-adjusted forecasting

Why this matters:

Forecasting is the heart of cost control.
It tells management where the project is headed before overruns occur.

10. Prepare Monthly Cost Reports

AACE Reporting Guidelines

Cost reports must include:

  • Budget vs Actual
  • CV, SV, CPI, SPI
  • EAC, ETC
  • Commitment summary
  • Accruals
  • Cash flow status
  • Trend log
  • Change order register
  • Risks affecting cost
  • Executive summary

Purpose:

Provides transparent cost visibility to management, client, contractors.

11. Manage Cash Flow (Inflow & Outflow)

AACE Financial Management Practices

Track:

  • Invoices & payments
  • Retentions
  • Advance payments
  • Monthly forecasted cash requirement
  • Client billing schedule
  • Revenue recognition

Outcome:

Ensures project liquidity and avoids financial stress.

12. Monitor Productivity & Manpower Performance

AACE Productivity Models (S&K Productivity Chapter)

Track:

  • Planned vs actual productivity
  • Crew allocation
  • Idle time
  • Rework hours
  • Overtime trends

Purpose:

Productivity directly affects cost → lower productivity = higher cost.

13. Conduct Cost Risk Reviews

Aligned with AACE RP 40R-08

Review:

  • Risk register
  • Monte Carlo risk assessments (if used)
  • Contingency drawdown
  • Exposure from pending claims

Outcome:

Keeps contingency relevant and controlled.

14. Interface Frequently with Planning, Engineering, and Procurement

Cost control is not a standalone function.

AACE emphasizes cross-functional alignment for:

  • Quantities from Engineering
  • Planned progress from Planning
  • Commitments/POs from Procurement
  • Contractor progress from Construction
  • Forecast updates from all disciplines

Purpose:

Accurate cost control depends on accurate inputs.

15. Update Procurement & Subcontractor Status Monthly

AACE Procurement Control Guidelines

Track for each PO:

  • Commitment
  • Delivery status
  • VOWD
  • Invoices
  • Payment status
  • Variations/claims

Outcome:

Prevents supply chain delays & cost escalation.

16. Review Rework & NCR Cost Impact

Aligned with AACE Quality & Rework Cost Guidelines

Track:

  • Rework man-hours
  • Scrap and material wastage
  • NCRs and their cost impact
  • Rework percentage vs direct cost

Purpose:

Rework is one of the biggest sources of cost overrun.

17. Maintain Cost Control Logs & Registers

Recommended logs:

  • Trend log
  • Change order log
  • Cost risk register
  • KPI tracker (CPI, CV%, EAC variance)
  • Lessons learned log

These help during audits and close-out.

18. Conduct Cost Performance Review Meetings

AACE S&K – Performance Management

Monthly meetings should include:

  • Cost deviations
  • Productivity issues
  • Forecast updates
  • Change order status
  • Contractual risks
  • Mitigation plans

Purpose:

Keeps all stakeholders aligned on cost health.

19. Validate Contractor/Consultant Cost Claims

Following AACE best practices:

  • Ensure entitlement
  • Validate quantities
  • Validate rates
  • Validate days/costs claimed
  • Prepare counter-estimates if needed

Outcome:

Prevents unjustified payment leakage.

20. Maintain Audit Trail & Documentation

AACE emphasizes documentation discipline

Ensure all cost-related documents are filed:

  • POs / invoices
  • Forecasts
  • Variance reports
  • Trend approvals
  • Meeting minutes
  • Approval emails

Purpose:

Protects project during disputes, claims & audit.

Conclusion

Effective cost management begins immediately after project start and must follow a structured approach aligned with AACE International’s standards. When the above steps are executed consistently, the project team can:

  • Prevent overruns
  • Improve productivity
  • Improve forecasting
  • Strengthen client confidence
  • Deliver within approved budget & scope

This framework ensures the Cost Control Engineer becomes the financial guardian of the project from day one.