Project Cost

Project cost is defined as the approximate (estimated) cost of all resources (people, materials and equipment) consumed by the performing organization necessary to achieve the project deliverables.

If a WBS (Work Breakdown Structure) scenario is used to contain information related to resources, estimated effort and activity duration, then, if costs are added to the WBS, it could represent the project cost center. In organizations the administration-finance department will supply an average cost per hour or per day of different types of resources. These rates would represent their average salary rate plus company burden, overhead and profit margins.

In for some reason, it's not possible to post rates against resources (because of company policy), then it's possible to calculate the cost of the project on a person day basis. 

For example: 1 person day = 8 effort-hours = 1 day (8 hours) x 100% (1 person)

In general: Resource Effort (or Work) = Time Elapsed (or Duration) x Percentage of Utilization (or Units)

This cost estimating process will help to verify which portions of the project can be kept in-house versus work that can be farmed out for cost saving measures.

If the WBS is loaded with the cost and the activities scheduled, it's possible to conduct financial time phased analysis (Cash Burn Rate Analysis: that is, measure the rate of negative cash flow (cash going out > cash coming in), over a given period of time). This is important particularly for large projects that require multi year financing.

Popular posts from this blog

The differences between Project, Operation and Program

Using PERT for estimating tasks

Forecasting Project Costs using Variance Analysis