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

Whether a cost is regarded as fixed or variable is dependent on how flexible it is. Variable costs are flexible such that they vary based on the nature of the service sought (Lichtenberg, 2016). Examples of variable costs include credit card fees, billable staff wages, and the cost of direct materials. In all these cases, the cost incurred will vary depending on how long the service is used or the quantity used (Pinto, 2019). However, there are costs whose value remains constant. Their value does not rely on factors such as the quantity used. Costs such as the amount paid for office space are fixed because the amount charged is not dependent on how long the office space will be used.

How costs are scheduled also determines their classification. For costs with a normal schedule such that they are incurred regularly, Pinto (2019) terms them as normal costs. These costs represent the bulk of the costs incurred and may include salaries paid to team members and the cost of repairing equipment. However, there are costs that a project incurs to ramp up progress and meet deadlines. For instance, a project manager could opt to hire additional staff or request existing workers to work additional hours in case there are fears of the project lagging (Kujala, Brady, & Putila, 2014). The cost of hiring these additional workers or paying them for putting in additional hours amounts to expediting costs.

The third form of classification considers how regularly a cost is incurred. Under this category, the cost can either be recurring or non-recurring. As the name suggests, recurring costs are those that continue recurring throughout the project’s life cycle (Kujala et al., 2014). For example, the monthly salaries paid to workers or the monthly phone bill are recurring because they will always be there as long as the project continues. However, if a cost is only incurred once, it is classified as non-recurrent. These costs could be paid at the beginning of the project or its conclusion (Pinto, 2019). For instance, the cost of purchasing capital equipment is only incurred the moment the equipment is purchased.

Finally, costs are categorized based on how they affect the project. Direct costs are distinguished by their ability to be traced to the final product (Pinto, 2019). In the case of a construction project, costs such as the purchase of raw materials can easily be isolated once the project is complete. However, some costs offer an indirect contribution to the project. For construction projects, the cost of hiring consultancy services may not have a direct link to the final project. For either case, the costs are distinguished based on how they can directly be linked to the final product.

The four categories considered represent the most fundamental way to categorize costs. Costs are classified based on factors such as their frequency of occurrence, their connection to the final product, their schedule, and how flexible they are. While some costs might not have a direct impact on the project, they nonetheless play a vital role in overseeing the project to its completion. Understanding each category of costs is an important cost management skill depicted by successful project managers.

References

Kujala, J., Brady, T., & Putila, J. (2014). Challenges of cost management in complex projects. International Journal of Business and Management, 9(11), 48-58.

Lichtenberg, S. (2016). Successful control of major project budgets. Administrative Sciences, 6(3), 8-13.

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