What is Project Cost Management?

The demand for greater profitability as well as the increase in audit frequency have led companies to need more refined and robust cost and budget management. The challenge is to be able to control, analyze, report, and anticipate costs more precisely. This requires specialized cost managers who have the experience and rigor to do so.

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There are different types of costs, which often complement each other:

• Direct and Indirect Costs: These distinguish between costs directly related to the production of a unit (good or service) and those that are not. If we take the example of a cookie manufacturing company, the raw materials or the number of hours required to make a cookie are direct costs. On the other hand, property rental, advertising, computer equipment or salaries are indirect costs because they cannot be linked directly to the production of a cookie.
• Fixed and Variable Costs: These distinguish between costs that evolve according to the quantity produced and those that do not. In our example of cookie production, raw materials, electricity or transport costs are variable costs because they depend on the level of activity, while the facility rental, advertising, or telephone subscriptions are fixed.
• Recurring Costs (RC) and Non-Recurring Costs (NRC): Most expenses in companies are recurring costs, i.e., they occur several times during the same accounting year (salaries, subscriptions, rents, etc.). Non-recurring costs are not intended to exist throughout the life of the company, for example: asset impairments, restructuring costs or legal costs. Generally speaking, these are exceptional costs.
• Operating Expenditures (OPEX) and Capital Expenditures (CAPEX): Operating expenses are current expenses that allow a business or product to run. Capital expenditures relate to capital assets and are expenditures that have long-term value. Both are often found in companies and can define how to manage costs within a project.

We can also distinguish the different costs by their nature within a project, which is more granular than those described above. Here are some examples of different costs that can be found in a project:

• Acquiring machines, software, etc.
• Building a factory/operating site
• Start-up/testing costs  
• Energy costs
• Transportation and travel
• Workforce
• Protection costs (insurance, video surveillance, fire)
• Maintenance, repair and operations costs
• Production downtime cost
• Cost related to the environment (pollution clean-up cost)
• Cost of dismantling and decommissioning
• Cost of intellectual property management
• Overhead
• Training

Understanding these different types of cost as well as the legal accounting requirements makes it possible to define the methods used in managing a project. This allows us to budget, analyze, plan, and control the project costs.

In our next article, we will look at the four phases of cost management.

This article series was written by Aurélien CRÔNIER and Mehdi DARD with contributions from Fanny DA SILVA and the MIGSO-PCUBED Cost Management Community of Practice.

[1] Source: The Standish Group