Terms Used within Cost Estimating and Cost Budgeting
Become familiar with the following terms, which are used within the cost estimating and cost budgeting processes:
- Costs are the funds that a company spends to produce products or establish an infrastructure to provide services. Examples are labor, raw materials, third-party software or hardware, and subcontracted work.
- Direct costs are incurred for the benefit of a specific project. Project managers can usually control direct costs.
- Indirect costs are incurred for the joint benefit of multiple projects and are applied through an allocation process. Project managers usually have less control over indirect costs and frequently overlook them.
- Fixed costs occur regardless of the complexity of the project. An example of a fixed cost is plant maintenance.
- Variable costs vary in relationship to related activities within the project. An example of a variable cost is the price of a piece of copper.
- Brand costs are the expenditures made to manufacture, distribute, and support a product or offering. Examples are warranty, software manufacturing, direct labor, and factory overhead.