Project managers are likely to encounter 4 types of cost as they plan and manage projects. They are fixed and variable costs, and direct and indirect costs.
Financial specialists will say there are more types of cost, but we will limit this discussion to the 4 mentioned above.
Let’s take a look at the 4 types of cost.
Fixed Costs
- Costs that are constant and do not vary
- Costs that are fixed in the short term may not remain fixed over time
- Fixed costs may include rent, office salaries, insurance, etc.
Variable Costs
- Costs that change with time and scope
- Costs which depend on the amount of work produced
- Indirect costs may include direct labor, raw materials, packaging, etc.
Direct Costs
- Direct costs are like variable costs
- Costs that are directly attributable to project work and the level of output
- Direct costs are billed directly to the project
- Direct costs may include equipment, software licenses, labor, team travel, or materials directly related to the project work
Indirect Costs
- Indirect costs include those costs that benefit more than one project
- Costs that cannot be linked to any particular project or program
- Sometimes called overhead or administrative costs
- Indirect costs may include office support staff, office utility costs, senior management salaries, etc.