PROJECT COSTING...

PROJECT COSTING:

project cost refers to the total funds needed to complete the project work. Project costs are required to be incurred to procure all the needed resources, products, services and resources to deliver the project successfully.

For example, for a construction project, the cost estimation includes the land acquisition costs, civil construction costs, material costs, administration costs, labour costs and other direct & indirect costs.

Project Cost Management

refers to the activities used to estimate, allocate, and control costs of a project... It enables an approved budget, monitors costs throughout the project, and provides a basis for decisions to control unexpected or extra costs. Cost management is important to everybody involved in a project. It sets the baseline for what a project is expected to cost and takes actions to ensure the project is on budget.

Cost Management has 4 processes:

1. Plan cost management

2. Estimate costs

3. Determine budget

4. Control costs

The fundamental components of project costs (important)

Resource planning

Resource Planning is the process of ascertaining future resource requirements for an organization, within the scope of project work. This involves the evaluation and planning of the utilization of the physical, human, financial, and informational resources that are required to complete work activities and their tasks.

Cost estimating

the Cost Estimation for each project resource, tools, materials, equipment and manpower, etc. are undertaken. Based on these cost estimations, the overall project budget is estimated. Cost estimating is the predictive process used to quantify, cost, and price the resources required by the scope of an investment option, activity, or project.

Cost control

Cost control is concerned with measuring variances from the cost baseline and taking effective corrective action to achieve minimum costs.

Cost budgeting

Budgeting is an extension of the cost estimating used for allocating the estimated cost of resources into cost accounts. It is the cost budget against which the actual cost performance is measured and assessed.

 

Types of project costs (Important)

1.   Fixed Cost

Any Cost which is fixed throughout the project life cycle and would not change by quantity, time or any other project activities / factors is called a fixed cost.

For example, in a software project, the rent for the company space, systems cost, software license cost, salaries are considered as a fixed cost. In a road construction project, the excavators and bulldozers are fixed costs. construction project, the excavators and bulldozers are fixed costs.

 

2.   Variable Cost

Variable costs are those costs which change with the time duration of the project or extent of project execution or activities completed. variable costs are a cost which varies or changes in proportion to the progress made by the project.

 

3.   Direct Costs

 which are directly visible and accountable to or associated with the project output / outcome are called direct costs.

Materials which are used to produce a product can be considered as the direct cost for that product. Logistics, human resources, project development costs that are used specifically to achieve the project outcome can also be considered as direct costs.

 

4.   Indirect Costs

Costs which do not directly contribute to or are not specific to the output of the project are called indirect costs. These are sometimes also referred to as Oversight Costs.

For example, Overhead Cost, Electricity consumption, rent, salary, administrative, security cost. These costs are not directly related to the production.

5.   Recurring Costs

 Recurring costs refer to any expense that is known, anticipated, and occurs at regular intervals.

Examples of recurring costs include those for resurfacing a highway. Annual expenses for maintenance and operations are also recurring expenses.

6.   Non-Recurring Costs

Nonrecurring costs are one-of-a-kind expenses that may occur at irregular intervals and thus are sometimes difficult to plan for or anticipate from a budgeting perspective.

Examples of nonrecurring costs include the cost of installing a new machine (including any facility modifications requiredemergency maintenance expenses, and the disposal or close-down costs associated with ending operations.

 

7.   Normal Costs

Normal Cost are the normal or regular costs which are incurred in the normal conditions during the normal operations of the organization. They are the sum of actual direct materials cost, actual labour cost and other direct expense.

Example: repairs, maintenance, salaries paid to employees.

 

8.   Expedite Costs

Expediting is a concept in project management for the purpose of securing the work quality and to prevent any unnecessary costs while also minimizing the potential risks.