How to Reduce Project Costs: 7 Actionable Tips

Keeping projects within budget is one common challenge that most project managers face at least once in their careers. 

Scope creep is one of the main reasons why projects exceed their budgets. It happens when a project’s scope keeps expanding without proper control, resulting in higher project costs. 

This article aims to help project managers who are burdened with monitoring project scope and reducing project costs. 

It provides seven proven tips for cutting costs and keeping projects within budget without headaches. 

Let’s get started. 

What can increase a project’s costs?

To reduce a project’s cost, let’s look at some issues that might increase it:

• Scope creep occurs when the project team or client adds new requirements or objectives after work begins. 
  Poor goal setting and agreement around project scope often cause scope creep. This may lead to more work, delays, and increased project costs. 
• Poor planning: The pre-planning phase of a project can avoid unrealistic timelines and overstretched resources.
  This lack of oversight can lead to increasing costs. When there is little room for error due to poor planning, the overall quality of a project can be compromised and may need to be redone, further increasing overall costs. 
• Resource mismanagement: Exhausting resource allocation can add a lot of financial waste to a project’s budget. For example, overstaffing can lead to excessive payroll costs without a corresponding productivity increase.

7 tips to reduce project costs

Reducing costs can keep projects within budget— here are seven actionable cost-reduction tips.

1. Allocate resources more strategically

Resource allocation is assigning the right resources to tasks to maximize productivity and efficiency. 

Accurate resource allocation matters as it:

•  Improves efficiency, prevents waste, and reduces unnecessary costs
• Directs resources to where they’re most needed to improve team focus and productivity 
• Prevents overload by distributing work based on team capacity
• Improves time management and keeps project milestones on schedule

After identifying the resources needed for a project, it’s best to create your project timeline, which is easy to do with a project management tool like Toggl Plan. 

When a project is created in Toggl Plan, you can enable Board and Timeline views. 

On the project timeline, add tasks by dragging and dropping or using the ‘Add Task’ button.

Once tasks are added and assigned to the right people, use the Team View to get a visual overview of each team member’s tasks. 

Here, you can add more tasks, edit, re-assign, and track your team’s workload.

With Toggl Plan’s Availability Overview feature, project managers can see each team member’s booked and available hours.

This visibility over capacity makes it easy to allocate resources efficiently and improve cost-effectiveness. 

2. Be more specific in your estimates

Detailed, accurate estimates help identify the resources, time, and budget needed for each project to minimize unexpected costs. 

Accurate project cost estimates increase project profitability by:

• Optimizing budget allocation
• Identifying cost-saving opportunities
• Minimizing risks of overruns
• Improving stakeholder confidence 

According to Bryan Berthot, a project management expert, the best way to get accurate estimates is to have the people doing the work make them.

“One way to get a better estimate is for the project manager and project sponsor to meet with the team and review the project work. For agile projects, the team will vote on what they think the effort and costs will be for each feature. Sometimes, this requires the team to discuss the feature to arrive at consensus on the estimate.”

You can use Toggl Track’s reports to review similar past projects and create more accurate estimates.

Here’s how:

1. Go to Projects.

2. Choose the past project you want to analyze and use the task breakdown to create your estimates. 

From there,  use Toggl Track’s Project Dashboard to compare estimates with your actual work to analyze project performance.

3. Outsource when needed

Outsourcing work to external parties can help reduce operating costs and speed up project delivery. 

It involves hiring external people to handle specific tasks that may require missing skill sets or too much time to perform in-house.

For example, a digital marketing agency might work on a project where the client requested video content production services. The agency does not offer this standard service, but they don’t want to lose this client. 

So, they decide to outsource this task to an external video production specialist to meet the client’s demands. Otherwise, the client may have decided to end the collaboration, resulting in lost revenue for the agency. 

4. Try to eliminate scope creep

Scope creep occurs when a project’s workload increases, straining resources and leading to delays and increased costs. 

Eliminating scope creep starts with a document to outline clear project objectives. You must also have a formal change control process and keep communication open with all project stakeholders. 

Here’s a quick, four-step scope creep prevention plan to avoid scope creep:

1. Get clear on the project scope: The first step is to create a statement of work that includes project objectives, goals, and deliverables. 

2. Plan timelines and processes: Effective project planning is the antidote to scope creep. Create the project’s timeline with clear processes for any recurring task, and assign people for each task. 

3. Make clear communication a priority: Keep clients and team members on the same page by regularly organizing check-in meetings. 

4. Track project progress: Project monitoring keeps you one step ahead of scope creep. That’s why you must track all project data, task durations, and employee working hours. 

5. Compare forecasted vs actual expenses

Comparing your actual spending against the forecasted budget as the project progresses is crucial to keep costs under control. 

But before you can reduce your project’s expenses, the first step is to create your budget, track your expenses, and analyze your actual costs. 

Here’s our Free Project Budget Template for Excel & Google Sheets to speed up your project budgeting process. 

You’ve already seen how Toggl Track makes it easy to compare similar past projects and helps to create accurate estimates. 

After a project budget is created, monitor it using the Project Dashboard.

The Project billing amounts forecast chart shows budget progress compared to initial estimates to help keep costs under control. 

You can also set Alerts to notify you when you are close to exceeding your budget. 

6. Create a project baseline

A project baseline is the original starting point for a project’s scope, cost, and schedule. Think of it as the project’s official benchmark for monitoring progress and effectively managing budgets and changes. 

The main types of baselines are:

• Scope: Defines the project’s boundaries, tasks, and deliverables, clarifying what the project will and will not cover.
• Cost: Outlines the project’s budget, tracks approved expenses, and guides financial management throughout the project lifecycle. 
• Schedule: Details the project’s timeline, when tasks should start and end, and key milestones to keep the project on track over time. 
• Quality: Sets quality standards for project deliverables and processes. 

Setting a clear project baseline makes it easier to accurately track progress, performance, budgets, and scope. 

The Project Progress Overview in Toggl Plan shows the progress of your entire project in one view.

To access this feature, click the Project Timeline and Board view button at the top right corner of your screen.

7. Try to uncover potential hidden costs

Hidden costs are those you overlook in the project planning stage. They can inflate the budget and cause delays, so you want to uncover them immediately. 

Some common hidden costs include additional expenses caused by project scope, increased labor costs, or unexpected technology upgrades. 

It may sound like a daunting task, but here are some strategies:

• Perform a detailed risk analysis to spot potential financial risks and unexpected costs that could arise during the project. 
• Review past projects, look for unexpected expenses, and analyze the context in which they occurred. Learning from past experiences is key. 
• Consult with the whole project team and clients to gather perspectives on possible overlooked costs. 
• Monitor project progress closely to catch any cost deviations early.

What are the benefits of reducing project costs?

It goes without saying that fewer project costs can lead to higher project profitability. However, reducing project costs also has other positive consequences. 

Let’s look at the key benefits of reducing project costs in detail:

• Increases profit margins: When you spend less to achieve project goals, the gap between project costs and its revenue increases profitability. 
• Strengthens competitive advantages: Operating more efficiently with lower costs allows you to offer services at more competitive prices without sacrificing quality. 
• Increases business resilience: Lower costs mean your business can more easily adapt and navigate challenging market changes or economic downturns. This is closely linked to the profitability benefit, as lower project costs equal increased profit margins, leaving more money in a company’s pocket to navigate economic crises. 

What’s the difference between cost cutting and cost reduction in a project?

The difference between cutting and reducing costs in a project lies in their strategies and long-term effects.

Cost cutting directly reduces expenses quickly to improve short-term financial performance. Examples include cutting budgets, laying off team members, or limiting the scope of work. 

While cost-cutting measures can be financially beneficial in the short term, they  also come with risks like lower quality and effectiveness. 

Cost reduction focuses on optimizing processes and improving productivity without lowering quality or scope. 

Project managers who want to reduce project costs look for inefficiencies or redesign processes to use resources more efficiently.

Cost reduction focuses on long-term savings and value and doesn’t come with the potential negative impact of cost-cutting. 

Over to you

Reducing project costs can be challenging, but as we’ve talked about above— it’s worth it. If done right, company’s will see project profitability, strong competitive advantages, and increased resilience in the market. 

We’ve also seen that reducing project costs becomes much easier with a tool like Toggl Track, which helps you: 

• Allocate resources more efficiently to keep projects within budgets
• Create accurate project estimates and track project budget progress
• Demonstrate cost-efficiency with insightful profitability reports 

So … sign up for a free Toggl Track account and make your life easier.