Project Management

7 Types of cost for your business case

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Categories: business case, cost

cost for business case

Are you putting together a business case? This is the time of year when many project teams are kicking off new work with the lovely new budgets that are available at the start of a financial year.

The UK government (HM Treasury and the Welsh government)’s guidance called the Better Business CasesTM model, has a section on different costs that are helpful to include in your outline business case.

Project managers don’t always get involved with business case creation but I think it helps when we are. If you are working on a new proposal, here are 7 types of cost that you can consider including as part of the economic appraisal for why the work should take place, and to show that you have fully considered all the elements.

1. Capital costs

For my projects, I’d say that capital costs make up most of the budget. These relate to buying equipment, whether that is IT kit, or in my case, machinery. They relate to costs that can be capitalised and (depending on your local regulations it might be different for you) the costs of bringing an asset into service.

2. Revenue costs

Also known as opex, these are pretty much the opposite of capital costs: things you can’t capitalise but are required for running the project. Maintenance, operational costs like some software licences, things that hit the P&L like the electricity bill and disposable coffee cups, if your project is required to pay for those.

Even if they are not necessarily part of your project budget, it is worth knowing abou tthesee and including them in the business case to show you have considered the whole life, complete costs of the work required.

3. Fixed costs

These are costs that are constant over time, regardless of how long the project goes on for. Typically for me, these are resource costs that are spread over the life of the project. They could also relate to other overheads like having to hire a portacabin as a project office on site.

4. Variable costs

The monthly impact on your project budget from these costs are variable. They tend to relate to how much of something you use per month, so it could be printing, it could be downloads of something, it could be training costs or meeting room hire.

5. Step costs

These are prices that increase as you reach a certain threshold. For example, if you use project management software you’ll be familiar with the licence model for SaaS tools where if you go into the next ‘bucket’ of users you’ll be charged an uplift. Let’s say the cost for 1-10 users is a certain price per user. When you hit user 11, you’ll be charged a different price.

This could also relate to items like post: as you ramp up receiving in items of post, your parcel handler changes the pricing structure and you end up paying more for hitting the threshold.

6. Opportunity costs

In a business case, you want to say what you’ve looked at in terms of other solutions. The model says that these should be explored in full and be representative of salary with all the on-cost (pension, employer’s tax contributions etc). These represent what you won’t be doing if you go with the recommendation: the loss of other alternatives.

7. Inflation

Yes, given the rising prices we’re experiencing at the moment, it’s worth building some inflation into your financial modelling. Your Finance team can tell you what the right amount to include is for general ‘normal’ inflation and also whether there are other rates applicable to certain elements of the business case, or the cash flow projections.

Next time I’ll look at another 5 types of cost you should also be including in your business case presentations, so watch this space!

Posted on: January 17, 2023 04:02 AM | Permalink

Comments (13)

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Great article. I am going to incorporate these Cost Structures into my Case development for my teams. Thank you.

@Chevine, great, I'm glad you found it useful!

Excellent article. Thank you!

Good read Ms Harrin.

I remember reading some free content on your "GirlsGuide.." website, during my PMP exam preparation last year.

Thank you for providing loads of relevant content for free to PMP aspirants and also qualified PMP professionals.

Stay blessed !!!

Great article

It's not clear where the cost of people's time goes. I see salary mentioned under opportunity costs.

I also find it important to separate money going out of the organization ("green dollars" in our USA context) versus internal costs like salary plus benefits for staff time.

Maybe you will cover those in the next article. Thanks!

It's a great list to make sure you don't miss expenses, Elizabeth.

For those of us who work on global projects, where would you place currency exchange expenses?

@Stephane, I've written about managing multi-currency projects before ( and Cover the process for currency exchange expenses in your financial management plan. I have always found the Finance team very helpful and it's likely you'll have internal processes that would deal with that. Otherwise, just add a line to the budget if you need to track them within the project costs.

@Ravi, thank you!

@Robert, yes attributable costs are covered in this article:

Thanks, Elizabeth! I was amazed that our finance group had to play catch up on currency exchange fees. We came up with a hedging strategy that mitigated some of the volatility.

Can you provide more details on these different cost types, i.e. whether its CAPEX or OPEX

Thanks and regards

@Renju, what can be capitalised is different for various countries/industries/accounting practices. Here's an article that summarises the differences:
I would suggest talking to your Finance team to see what your local provisions will be, but that article gives you a broad general overview.

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