Project Management

5 More Cost Types to Include in Your Business Case

From the The Money Files Blog
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A blog that looks at all aspects of project and program finances from budgets, estimating and accounting to getting a pay rise and managing contracts. Written by Elizabeth Harrin from GirlsGuideToPM.com.

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Last time I looked at 7 types of expense that are worth mentioning in your business case, to show that you’ve got a rounded handle on all the costs.

The Better Business CasesTM model that I mentioned last time goes on to describe even more different cost types that you should be aware of. I did know about some of these, but this list has some in that I wouldn’t routinely think of.

We might not need to mention or use them all in business case preparation, but it is worth having a general awareness of them, not least so you can ask your Finance colleagues smart questions!

cost for business case

1. Sunk costs

If your business case represents a Phase 2 or subsequent investment, then it’s worth mentioning the sunk costs: the money already spent on other parts of the work that you cannot get back. These might be in contracts already issued, purchase orders already raised that must be fulfilled or previous steps of the project.

They get a mention in the business case but they aren’t part of the appraisal. In other words, talk about them so that decision-makers have the whole picture, but don’t include them in the cost assessment or budget figures for this part of the project.

2. Full economic costs

This is another term I wasn’t aware of but it only means including direct, indirect and attributable costs for each option mentioned in the business case. In other words, flesh out your finances so they show the whole, true picture. Use a bottom up approach to get the real figures.

3. Attributable costs

Wondering what attributable costs are from the section above? These are generally the costs related to staff time. If your team members are caught up delivering the project in this business case, they aren’t doing work on other business cases, that might be equally or even more important. So attributable costs are things that don’t fall into the direct or indirect category but are relevant as they round out the business case.

I think too many managers forget that if you are working on Project A you can’t be working on Project B at the same time (because they expect that everything gets done, most likely!). It’s worth calling out that if you tie up a team full-time on this initiative, their costs go towards the project and their staff time is allocated.

4. Organisational development

Organisational development costs are the figures related to change management. These are definitely worth including. I can’t even remember the number of times I’ve had a project budget handed to me and there has been no allocation for training, printing, change management, travel and room hire for workshops or town halls, or anything else. Make sure your business case includes the costs of what it will take to go from the current way of working to the new way of working, including any process updates, change activity and staff development required to make proper use of the thing you are delivering. 

5. Contingent liabilities

Now, I confess to including these in business cases in the past but not knowing the correct term for them. You are probably aware of them too: they are the expenses related to future events. For example, the costs you may incur to buy yourself out of a contract early. Make a mention of those in your financials as well.

So, we have all those, as well as capital, revenue, fixed, variable, step, opportunity costs and inflation that I covered last time.

It feels like this business case is going to be weighty! Remember to draw on your sponsor, finance analyst and the finance team more broadly for support with the numbers and to make sure your maths stacks up. Ideally, they should be providing the underlying assumptions and algorithms that make up the financial parts of the business case template. As the business case is a major input to how much money you get to do the work, it’s important.

Posted on: January 24, 2023 12:00 AM | Permalink

Comments (1)

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Contingent Liabilities does find a mention on Risks, but very rarely does the sponsor agree to have it as part of budget.

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