There are different ways to look at the costs while
estimating and controlling project costs.
A cost is either variable or fixed.
Variable Cost
A variable cost is any costs that change with the amount of
production or the amount of work. Example: cost of materials, power, water and
wages.
Fixed Cost
Cost that does not change as production changes is a fixed
cost. Example: set up cost, rental or hiring of an equipment or machinery.
A cost can be either direct or indirect.
Direct Cost
Costs are directly attributable to the work on the project.
Example: team travel, team wages, recognition, and costs of materials used on
the project.
Indirect Cost
Overhead items or costs incurred for the benefit of more
than one project are indirect costs. Example: Corporate Tax, Fringe Benefit
Tax, and House keeping Services including security services.
Opportunity Cost
The Opportunity given up by choosing a choice of project
over another project is an opportunity cost. For example, if we need to select
one of the following two projects:
-Project A with an NPV $60,000
-project B with an NPV $50000
then opportunity cost of selecting Project A is $50,000.
Sunk Cost
Sunk costs should not be considered when deciding on
reviving or continuing with a troubled project. Sunk costs are the ones which
were already spent on the project earlier and will not be considered when the
revival plan decision is made.