How To Cost A Project Properly

Some projects may be relatively straightforward to cost, but most are not. Even simple figures like the cost per hour of labour can be difficult to calculate and often approximations are used. At a fundamental level, the process of costing is relatively simple:

• Draw up a list of all your likely expenditure, and then
• Put a numerical value against each item.

The total of these equations, therefore, represents the tangible cost of your project.

You may also however need to consider ‘intangible’ items.

What Are Tangible Costs In A Project?

Capital Expenditure

This refers to any large asset of the project which is purchased outright. This usually includes plant, hardware, software in addition to sometimes even buildings although these can be accounted for in a number of different ways.

Lease Costs

Some assets are not purchased completely but are rather leased in order to spread the cost over the life of the project. These assets should be accounted for separately from capital expenditure as the project or organisation does not own these assets.

Staff Costs

All costs for staff members must be accounted for, which includes (but is not limited to):

• Salary and pension costs: insurance costs, recruitment costs – in other words anything that can be tied directly to employing, training in addition to retaining staff.
• Professional services: all large-scale projects need the input of one or more professional groups such as lawyers or accountants. These are usually accounted for separately as a close watch needs to be kept on expenditure in this area.

Without keeping a watchful eye on these, the costs of a consultant engineer, accountant or lawyer can rapidly dwarf other costs.

Supplies And Consumables

Regular expenditure on supplies is usually best covered by a single item in your budget under which these numbers are accrued. They are related to overhead costs that are covered below.

Once-Off Costs

Once-off costs apply to expenditure that is not related to any of the above categories but occurs on an irregular basis. Staff training could be an example. While it may be appropriate to list this under staff costs you may want to track it independently as an irregular cost. The choice is yours however the principles of prudence and consistency apply.

Overheads

These are sometimes called indirect costs and are not directly attributable to any of the above categories but nevertheless impact on your budget. For instance, it may not be appropriate to reflect the phone bill for your project in staff costs but this still has to be paid and accounted for.

Costing for overheads is often done as a rough percentage of one of the other factors such as ‘staff costs’.

What Are Intangible Costs?

It has become fashionable to account for ‘intangible’ assets on the balance sheets of companies as well as possibly also projects. The argument goes like this: some donations to a project are extremely valuable however cannot automatically have a tangible value associated with them.

Should you then account for these in the budget or costing? The ‘prudence’ principle says ‘yes’ but practicality says ‘no’. If you are going into this murky area of accountancy you should seek professional help and advice.

Typical things you may place in the budget under intangibles are ‘goodwill’ in addition to ‘intellectual property’. Staff-related figures are a frequent source of intangible assets and so you might find things like ‘management team’, ‘relationships’ and ‘contacts’ on an intangibles balance sheet.

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