Contract Cost vs Actual Cost

Contract Cost vs Actual Cost

Project-driven companies need to manage several budgets for the same project. Particularly useful to control contract cost (income) and actual cost (expenses) of project.

The actual cost comprises of equipment, materials, resources and other direct and indirect expenses.

Cost Centers
Spider Project unique feature – Cost Centers enable to control several budgets of the same project. Project cost components in Spider Project could be grouped in cost centers to control both: contract and actual costs.

This approach has a number of advantages:

  • To be competitive in tenders, as it is extremely useful to calculate planned profit, taking risks and uncertainties into account;
  • During project execution, project managers can control how their decisions impact profit;
  • Project sponsors can understand the “cost of delay”.

See how Contract Cost and Cost Centers work in Spider Project:

Julia Lyaschenko

PMO | Program Planning & Delivery Specialist | PRINCE2© Practitioner | SAFe© Agilist (SA)

Indirect Project Cost

Indirect Project Cost

Direct and Indirect Project Cost

Project cost consists of direct cost components such as labour, materials, machinery and equipment costs. Also, an overall cost may include indirect cost, frequently referred to as overhead expenses: rent and utilities, some general and administrative expenses, or even some portion of accounting and human resource department costs.

Organisations have business rules of how indirect cost has to be applied. Usually, it is a percentage of overall direct cost or specific cost components.

Spider Project allows applying formulas to cost components for easy calculation of indirect project cost, based on unique organisational business rules.

Such an approach allows understanding of the “cost of delay” when the indirect cost increases overall project cost if the project takes longer than expected.  

See how inderect project cost & schedule integration work in Spider Project:

Julia Lyaschenko

PMO | Program Planning & Delivery Specialist | PRINCE2© Practitioner | SAFe© Agilist (SA)

Cost and Schedule Integration

Cost and Schedule Integration

An integrated delivery model must take into account all technical, resource and financial constraints.

Full integration between project time and cost must include all expenses assigned to project activities, resources and time-driven tasks.

Cost Components

As each project is unique, it may require different cost components like: labour, materials, machinery, licensing, indirect cost, penalties, cost of delay, contract costs and many others.

  • It is not sufficient enough to just have a single cost category. It is essential to manage and analyse project costs from different perspectives. So, cost components must be defined and set up based on project nature.
  • Additionally, to expense costs, a project can have contract costs, and in many cases, it is necessary to create and manage several budgets for the same project.

Therefore, it is necessary to define these elements as individual cost components that can be used for project budgeting, project performance and risk analysis.

Cost Assignments

Different projects may require managing cost elements in different ways:

  • Activity costs can be defined as fixed, cost per volume unit, and cost per work hour;
  • Renewable resource cost can be defined as cost per hour;
  • Consumable resource cost can be defined as cost per unit;
  • Resource assignment cost can also be fixed or defined as cost per work volume unit and hour;
  • Indirect costs usually depend on project duration, and they are assigned on the Level of Effort or Hammock activities. It is usual practice to calculate them as the percentage of some cost components.

The cost of time must also become a part of the project model. Usually, project cost rises when the finish is delayed or drops with the schedule acceleration.

Cost and Schedule Integration

Proper cost and schedule integration require:

  • Project delivery plan to be built based on volumes of work, resource productivities, resource availability, material supply and funding constraints.
  • Project cost loaded based on the relevant cost components.

Only then a project delivery model has a full and reliable cost and schedule integration.

The application of this approach can significantly improve project management culture and increase the number of successful project implementations.

Spider Project allows full integration of time and cost. The project team can set up all necessary cost elements in all possible ways.

See how cost & schedule integration works in Spider Project:

Julia Lyaschenko

PMO | Program Planning & Delivery Specialist | PRINCE2© Practitioner | SAFe© Agilist (SA)