No matter what kind of project you decide to do, there’s no doubt that you will require certain resources and services. That means you’re going to have to consider how much each and every single one of them is going to cost if you want your project to take place.
You’ll need to take into account all of the different costs so you can properly budget your project funds, as well as ensuring that everything stays within that budget. And that’s why this article is going to teach you how to do a project cost analysis.
Project Cost Analysis Report
Project Cost-Benefit Analysis
How to Create Your Project Cost Analysis
Remember that the entire purpose of doing this type of analysis is so that you are able to figure out the total amount that needs to be spent on a particular project. By factoring all of the different costs that will appear before or even during the project, you should be able to prepare the funds ahead of time. Businesses who tend to think ahead by doing this type of analysis are usually the ones that manage to thrive in the industry.
So with that in mind, here are the steps that will allow you to create a project cost analysis:
Look Into the Scope and Purpose of the Project
The first thing that you are going to have to do is to have a complete understanding of the project that you are about to do. To start, you need to realize the purpose as to why you even need to an analysis, and what the purpose of the project is for. Aside from knowing how much a project is going to cost, you can also use the analysis to determine how you should bill a client based on what was spent (assuming you’re a contractor providing the work and the resources).
As for the project in itself, you need to realize its purpose so that you are able to see how far it stretches. Let’s say that you plan on conducting a workshop that’s meant to train those in your company. Which departments will be affected by the training? What kind of materials are you going to need? Where is it going to be held? Answering those questions should give you an idea in terms of what needs to be done and what the different costs are going to be.
Review Any Previous Costs Analysis
Let’s say that you’ve already done a similar project in the past. There is a chance that things will be much easier in your end should it be known that you have already conducted a similar cost analysis in the past. By simple going through your records and checking, you may just be able to pull out a file. What you can do once you obtain is to use the same methods that was done on the past analysis. Maintaining continuity in this way means the reports can be compared, making them more useful over time
If you can, then you should look into the analysis costs of other businesses that have deal in similar projects. That should help give you an idea on how you should go about in doing it.
Gather All of the Necessary Documents
Before you can even think about looking into how much you’ll need to spend for a project, you’re going to need all of the necessary documents first. For each type of cost you plan to include in your cost analysis, make a note of where you plan to get the figures to calculate that type of cost. What this means is that you’ll need to look at the right numbers if you want to come up with the right amount that you need to pay for the entire project.
If you need to estimate a cost, list where you’ll get the information to make a reliable estimate. It’s important that you use actual cost information as much as possible. It will increase the utility and reliability of your ultimate cost analysis.
In the event that you’re going to estimate the amount that you’re going to be spending, then seek out reliable sources that can be applied as narrowly as possible. For example, let’s say that you’re figuring out how you should go about in paying the employees taking part in the project. When doing this, it’s best that you stick to the average amount of pay that an employee were to receive for doing such a project, meaning that you’re going to have to seek out different sources of data to figure out the average amount.
Make a List of All the Direct Costs of the Project
Now comes the part where you will need to go into detail with whatever it is that you decide to write. It is here that you will be looking into all of the different costs that are directly related to the project. Direct costs are specific to the project you’re evaluating in your cost analysis, meaning that other factors from other projects will not be involved.
To give you an idea, here are a few examples:
- The salaries of the people that are working on the project
- The materials that are going to be used
- The equipment that needs to be purchased/rented
- The fees for service providers
- The costs of insurance
It’s possible that overhead costs such as utilities or rent, may be a direct cost if the project being done is required to have a specific location. As you’re making the list, be sure that you don’t leave anything out and that the figures are all right. You do not want to make any sort of mistakes or miscalculations as that can end up ruining the entire analysis.
Take Note of the Indirect Costs
When you think of indirect costs, these happen to be things that you will need to spend on that can span throughout different types of projects. What you categorize as an indirect cost will depend on how you have separated the different projects that are taking place within your business.
Here are a few examples of an indirect cost:
- The salaries that need to be paid to management
- The facilities that need to be used for the project
- The benefits of those that are working on the project
Basically, just about any aspect that’s shared between the project that you’re doing and all of the other projects are what you can consider as indirect costs.
Categorize All of the Different Costs
Once you’ve managed to look into all of the costs that needs to be taken care of, you’re still going to have to categorize all of them. That way, you will be able to figure out which cost belongs to where, as well as which ones to prioritize.
For example, items such as headgear and protective jackets can be placed under the category of “equipment” for a particular construction project. Remember that keeping things as organized as possible will make it much easier for readers to take note of what needs to be spent, as well as helping them keep track of where their funds are going towards.
Factor In All of the Hidden Costs
Aside from the ones that are glaringly obvious, there will be costs that you may not expect. Depending on your organization and the project that you need to evaluate, there may be additional costs that wouldn’t appear on any budget sheet or financial record. What you’re going to want to do is to prepare for these hidden costs so that you are at least able to prepare for them. Take note that including estimates of these costs in your analysis will give your evaluation more credibility.
For example, if you’re doing the cost analysis of a non-profit project, hidden costs might include the estimated value of volunteer hours, donated materials, or even the amount of space that has been donated.
Also, you should realize that hidden costs also involved opportunity costs. What this means is that certain costs may affect that of other projects. So if you plan on spending on a particular aspect of a project, consider if it’s going to have any effects on the organization’s ability to complete others. If you see that it does so but in a negative way, then you should highly reconsider unless you think that it’s still the way to go.
Although doing this type of analysis isn’t easy, it is absolutely necessary. So just follow the steps above and you should be able to do a proper cost analysis.
In the event that you would like to learn how to come up with other types of analysis, then all you have to do is to go through our site. It has many different articles, all of which should have the information you’re going to need. Just be sure to read the articles you’ve chosen thoroughly so that you can make the most out of what they have to offer.