Project Management

Back to PM Basics (Part 8): How Much Is This Project Going to Cost, Anyway?!

Following 20 years at a large Canadian telecommunications firm, Bruce established the project management consulting firm Solutions Management Inc (SMI). Since 1999, he has provided contract project/program management services, been a source for project management support personnel and created/delivered courses to over 7,000 participants in Canada, the United States and England.

You have now completed seven articles in the series designed to build a project management foundation. Having developed an understanding of how to fully define the project scope through the use of a work breakdown structure (WBS), we then moved to schedule development. In Part 6, duration was defined and techniques to accurately estimate work package timing was reviewed. Then in Part 7, the work packages were sequenced, the individual durations integrated, and the project duration calculated.

Scope definition and project timing represent two of the three elements of the project triple constraint (see Part 3 for a refresher on the importance of the triple constraint). The third element of the triple constraint is project cost management.

When building a project budget, it is important to understand what costs the project and project manager are responsible for. Typically, there are four types of costs that a project manager confronts:

  • Direct costs: These are the costs that wouldn’t be incurred if the project wasn’t happening. Examples of direct costs include such things as material purchases, rented equipment, contracted labor and specific transportation requirements.
  • Indirect costs: These costs are usually internal corporation costs that may be allocated as the project happens. Examples include management costs, existing facility use and administration…

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