Costs in Project Management

Costs associated with the Projects

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.

Components of a Project Plan

Introduction
This article details the high level project plan and the components of the same. A project is a success if it
meets the objectives of time, cost, technical and business. Project objectives are defined in the preliminary
project scope statement. As mentioned above, a project is deemed complete if the project objectives have
been met. The objectives should be clear and achievable.

Project Objectives
The objectives for this project have been summarized as:

1. Time

The project plan must contain the time taken to complete the project end-end from requirements to
implementation. A detailed analysis of each stage and the time taken for the same must be outlined
upfront and milestones for each stage defined.

2. Cost

The cost for completion of the project as defined by the time taken to complete and the technical
and business objectives being met is to be defined. All the project objectives are linked to each
other and any change in one variable affects the others as well. For e.g. a change in the technical
requirements would mean that more time would be required to complete the project and this in turn
affects the cost. Thus there are cascading affects on each of the variables.

3. Business

The business objectives have to be clearly spelt out by your company in terms of the sales
generated, the cost benefit analysis of building a website and consequent revenue generation etc.

4. Technical

The technical requirements can be stated in terms of the quality of the deliverables and the number
of defects found during each of the testing phases and the turnaround time for implementation etc.
Work Breakdown Structure

The above chart is a representation of the Work Breakdown Structure (WBS) for the project. It represents a
high to medium level summary and it can be refined further. The WBS has been summarized in the
organization chart keeping in mind some factors like:

The WBS is a high level overview that can be broken down into smaller and smaller package of
work until the Project Manager achieves the level of granularity that he/she wants. This granularity
is to be obtained keeping in mind the realistic scenarios. For e.g. the first level of the WBS
described above is the same as the project life cycle, Requirements, Design etc.

The next levels of the WBS are broken down based on the work packages that are to be assigned
to the team members. The packages must be designed in such a way that the deliverables are met.

In a way, the WBS is the foundation of the project. The time and cost of the project are defined in
terms of the work packages and estimated accordingly.
Responsibility Matrix

Team Member

Activity

Team member 1 Team member 2 Team member 3

A (design) P S

B (coding) S P

C (testing) S P

P - Primary responsibility

S - Secondary responsibility

This chart cross references the WBS created for the project. Each of the work packages created in the WBS
is allocated to each of the team members with primary and secondary responsibilities assigned accordingly.

Project Plan
The project plan consists of the above details as well as the WBS and the responsibility matrix. A detailed
project plan needs more elaboration and is a separate activity altogether.