Costs in Project Management - Costs associated with the Projects

Types of Costs

The following are the costs associated with the projects.

  1. Direct costs

    Any costs that are directly attributable to the work on the project. These can include the salaries paid to the resources, the billing rate of the resources and costs of the software and hardware that are used for building the website

  2. Indirect Costs

    These costs are spread out against many projects and cannot be linked to one project alone. These costs include those incurred in shared services like cost of office space, taxes paid by the organization and other services like secretarial and janitorial staff

  3. Variable Costs

    Costs that change in proportion to the amount of time and material that are spent on produced in the project.

  4. Fixed Costs

    Costs that do not change with the timeline or progress of the project.

A cost be either Fixed or Variable; Direct or Indirect

The overhead costs for this project are the office setup and shared services. While the costs incurred in setting up the office space can be general overhead cost as it is a one-time cost and is borne by all the projects in the organization.

The project overhead costs are the costs incurred in the shared services such as secretarial staff and other services provide to the project and can be directly billable as such.

Time phased budget

A time phased budget would include the costs incurred at each interval or milestone of the project. The milestones for this project would be requirements, design, coding, testing and implementation. The budget for the same would be the costs at each stage of the project.

The Budget at Completion or BAC should have all the components of the costs included like direct and indirect costs, fixed and variable costs etc along with the cost at each phase or milestone of the project.

The cost variance should be measured using Earned Value technique and this tool allows the manager to assess the completion of the project at each milestone according to the cost incurred and the value accrued till then. Variance between these two measures gives an accurate estimate of the health of the project.

Cumulative costs

The cumulative costs of the project are the ones that are incurred up to a specific phase or milestone of the project. It can be measured by using a Cost Performance Index or CPI which measures the ratio of the Earned value with regards to the Actual cost incurred on the project. As outlined above, all the costs that accumulate up to a particular phase can be called the cumulative costs of the project.

Cost control

The cost management plan should include the plan for controlling the costs of the project. There should be a measurement of the costs involved and their variances tracked, if any. Any variance to the budget must be controlled by the controlling the impact of the cost changes.

Further, cost control can be done in the area of overhead costs and general and administrative expenses.

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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to and the content page url.

Project Management