Thursday, July 10, 2014

Types of Costs from PMP point of view

Types of Costs from PMP point of view.

There are four types of costs that PMP talks about. They are:
The costs that are directly related to the project which are directly ‘estimated’ into a particular project or directly billed to that project. So these are the costs that are directly attributed to a particular project.
Indirect costs are not directly related to and cannot be attributed directly to particular project. These are attributed most of the times for a group of projects. Hence, they cannot be billed directly to one particular project.
·         Costs incurred on material (like steel, wood, etc.) used for construction of building
·         Buying an equipment
·         Labour wages
·         Depreciation costs
·         Cost of materials that wear out over a period of time like paints, etc.
·         Supervisor’s salaries
·         Taxes etc.

These are the costs that are fixed and do not change throughout the project.
These are the costs that vary over a period of time based upon the amount of work done.
·         Costs incurred on Rent of place, equipment, etc.
·         Cost of material over a period of time
·         Cost of labour
·         Cost of fuel, etc.

 There is another type of cost called Sunk Cost. Sunk costs are those cost that have not added any value to the project. Sometimes change in the technology during the project may demand for the advanced technology and the costs that have been incurred on the old technology are of no value. So that cost has just sunk into the project because of the change or advancement in the technology. Or there can be instance where because of change in the market dynamics the project is not longer valid. Even in such case also the cost incurred in such project is treated as sunk cost. Sunk cost is the cost than cannot be recovered.

However, the PMBOK® Guide 5th Edition talks only about Direct and Indirect costs.

If you are confused, please don’t worry. You are not alone. J

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