The assignment is to answer the question provided above in essay form. This is to be in narrative form. Bullet points should not to be used. The paper should be at least 1.5 - 2 pages in length, Times New Roman 12-pt font, double-spaced, 1 inch margins an

Running head: CATEGORIES OF COSTS 2

CATEGORIES OF COSTS 2

Categories of Costs Prashanth Kura University of the Cumberlands

Categories of Costs

A project is not without its costs. It is the budgeting process that highlights the costs that a project will incur and the ways the project team will handle them. Project managers use the cost management function in assessing, assigning, and controlling the costs of a project. The process allows the manager to predict coming expenses in order to avert the risk of it exceeding its budgetary allocation (Kerzner, 2017). Costs take various forms depending on factors, key of which is there nature. The primary classification of costs looks at their type, their frequency, the opportunity to be adjusted, and schedule (Pinto, 2019). These four classes represent the most fundamental ways to categorize costs in the domain of cost management.

Costs can either be direct or indirect when categorized in terms of types. Direct costs denote those assigned to aspects of a project that generated the particular cost (Pinto, 2019). For instance, the amount spent on hiring labor or acquiring construction materials is a classic example of such costs. On the contrary, indirect costs are those that may not directly be accountable to a cost object. For example, administration, office expenses, and utilities cannot be directly be connected to a purchased item.

Costs are also categorized based on how frequently they occur. Costs that occur frequently are classified as recurring costs (Pinto, 2019). Such costs will always occur throughout the lifecycle of the project. For instance, labor costs, the cost of leases, and logistics always attract a budgetary charge and thus fall into this category. On the other hand, those that only attract a charge only once in a project’s life cycle constitute nonrecurring costs (Kerzner, 2017). As an example, the cost of personnel training might only be incurred once, hence qualifying to be called non-recurring. In either case, how frequently a cost occurs determines its classification.

The third classification of costs considers whether they are fixed or variable. A cost is regarded as fixed if it does not fluctuate over time (Pinto, 2019). For example, the cost of leasing capital equipment may remain constant throughout the project’s lifecycle irrespective of usage (Al-Tmeemy & Al Bassam, 2018). On their part, variable costs are those that change depending on the degree of usage. Hence, the more a service or product is used, the higher the charge it will attract. For instance, the cost of leasing a crane could vary depending on how long it will be used and for which purpose.

The fourth category considers the schedule of costs. Those that are incurred during the everyday process of working are regarded as normal costs. According to Pinto (2019), these costs are used in completing the project as per the initial schedule at the start of the project. They are calculated as the sum of actual direct material costs, actual labor, and related direct expenses (Heinze, 2017). Examples include repairs, maintenance, and salaries. The opposite of these normal costs is expedited expenses, which include the charges incurred in an attempt to rush the project (Pinto, 2019). A common example is the payment of overtime to workers in a bid to get them to work for longer hours.

Cost management is the process of aassessing, assigning, and controlling project costs. The process allows the project team to predict impending expenses to lessen the chances of cost overruns. Costs take various forms and can be classified based on their nature. The primary classification of costs considers their type, their frequency, the opportunity to be adjusted, and their schedule. Each category determines how the project team will approach its cost management function.

References

Al-Tmeemy, S., & Al Bassam, B. (2018). An empirical analysis of the relationship between cost of control activities and project management success. MATEC Web of Conferences, 162(1), 2036-2051.

Heinze, K. (2017). Cost management of capital projects. Abingdon: Routledge.

Kerzner, H. (2017). Project management: A systems approach to planning, scheduling, and controlling. London: John Wiley & Sons.

Pinto, J. K. (2019). Project management: Achieving competitive advantage (5th ed.). Boston: Pearson.