What is Project Cost?
Project cost refers to the amount of money needed to secure all necessary resources to initiate, execute, and complete a project. The project cost, or budget, will need to consider all factors that directly and indirectly affect the project.
Project cost management is part and parcel of overseeing any project. Without proper finances, a project cannot run. Therefore, project cost management is the process that most significantly impacts project performance.
For example, if a company decides on an expansion project of their home office, the project budget must cover all materials, labour, products, and licenses needed to execute and complete this growth opportunity.
Multiple expenses must factor into the project budget when estimating costs, such as:
- Fixed Costs: Costs that do not change throughout a project’s lifecycle, fixed in relation to the project’s timeline, not fixed indefinitely
- Variable Costs: Costs that fluctuate or change throughout the project lifecycle in direct relation to the products or services produced from the project
- Sunk Costs: Costs that have already been spent on the project without seeing any return on the value. These are costs that are permanently lost
- Direct Costs: Costs directly related to realizing the project’s objectives
- Indirect Costs: Costs that indirectly contribute to the project, which can be fixed or variable
- Total Project Costs: Factoring in all other cost types to determine the total cost of the project. If inaccurate cost estimates happen at this level, there can be serious consequences for the project.