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Project Costs
A project estimate can be sub-divided into a number of different costs, consider the following:
1. 2. 3. 4. 5. 6. 7. 8.
Direct costs Indirect costs Time related costs Labour costs Material and equipment costs Transport costs Preliminary and general (P&G) costs Project office costs
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1-Direct Costs
direct costs are those costs that can be specifically identified with an activity or project. The current trend is to assign as much as possible, if not all costs to direct costs, because direct costs can be budgeted, monitored and controlled far more effectively than indirect costs. Direct management costs refer to the project office running costs. Salaries for the project manager, project engineer, planner, accountant, etc. Direct labour costs refer to the people working on an activity, e.g. boilermakers, welders, fitters, computer programmers, etc. Direct material costs are for the materials, consumables, components which are used for completing an activity and an allowance for scrap and wastage. Direct equipment costs refers to machinery, plant and tools. Direct expenses include bought-in services that are specific to the project, for example, plant hire, surveyor, designer and sub-contractor fees.
The distinctive nature of direct costs is that the total expense can 5 be charged to an activity or project.
2-Indirect Costs
Indirect costs, also called overheads, are those costs which cannot be directly booked to an activity or project, but are required to keep the company operational. Indirect management costs refer to senior managers, the estimating department, sales and marketing, general office staff, secretarial, administration and the personnel department. Indirect labour costs refer to the reception, maintenance, security and cleaners. Basically it includes all the employces who are required to keep the company functioning. Indirect materials include stationery, cleaning materials and maintenance parts. Indirect equipment includes computers, photocopiers and fax machines.
Rent increases with time. Running costs - water, electricity and gas would increase with time. If the project's duration is reduced, employee labour rate will increase if theworkers have to work overtime. Contract labour on a fixed rate is not affected by time, but their productivitymay reduce if they work long hours. Fixed price contracts may not be affected by time.
4-Labour Costs
This section will explain how to determine your labour charge-out rate. The labour costs considered here are for the project workforce and thus a direct cost. Although the salaries of a workforce may be clearly identified there are also a number of other associated costs which form part of the labour rate. The labour rate is calculated by aggregating the various costs and dividing them by the number of man-hours worked. This process is explained in the following worked example. Here the costs have been subdivided into four main headings: Salary Associated labour costs Contribution to overheads Contribution to company profit.
Main Purpose
Procurement Costs
This section will determine the procurement costs to acquire all the required boughtin goods and services. The simplest method is to add a percentage to the buying price to cover all the procurement costs, consider the following (table 2):
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6-Transport Costs
It is important to appreciate the additional costs that may be incurred delivering the goods from the suppliers factory to client's premises or site, consider the following terms: Ex-Works: It is the purchaser's responsibility to organise and pay for delivery, loading, transport and insurance from the factory gate. FOB (Free on Board): The supplier will arrange for the goods to be loaded on board a ship, plane, train or truck at an agreed place. The supplier will pay for the port duties and export clearances, while the client is responsible for the transport, insurance and any import duties.
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CIF (Cost, Insurance and Freight): The supplier pays for the delivery of the goods to their final destination plus the insurance. The client pays for import duties. DDP (Delivered Duty Paid): The goods will be delivered to the purchaser's front door. All the risks and costs relating to transport, insurance and duty will be the suppliers responsibility. 11
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Benefits
The following lists some of the benefits which have to be considered, from which it will be apparent that some will be very difficult to quantify in monetary terms.
Financial Statutory Economy Risk reduction Productivity Reliability Staff morale Cost reduction Safety Flexibility Quality Delivery Social.
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Reference
1. Eur Ing Albert Lester, CEng, FICE, FIMechE, FIStructE, FAPM, .2003, Project Planning and Control, Fourth edition, Elsevier Butterworth-Heinemann,Oxford.
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Pandey, Devendra Prrasad .2008, Rural PROJECT MANAGEMENT , New Age International (P) Ltd., Publishers, New Delhi - 110002
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Gittinger,J. Price. 1984, ECONOMIC ANALYSIS OF AGRICULTURAL PROJECTS ,Economic Development Institute, The World Bank ,London.
3. 4.
http://www.googlesearch.co.in/ http://www.wikipedia.org/.
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