Organized Bookkeeping

How do you Calculate Project Cost?

When I complete project management tasks for companies and non-profits; one of the most complex bits is to capture all the costs.  Not just the obvious costs, the overhead, the labor and other non-obvious costs.

Not all costs are foreseeable, but if you do some basic planning and forecasting, the project will get much smoother.

An example of how projects can go poorly is a home remodel project.  Say the homeowner would like to install tile floors in the bathroom.  They go to the home improvement store and see how much the morter and tile cost.  Bingo!  That’s the budget.  However, tile floors usually need adequate support and tile board installed.  Perhaps the floor is rotten and needs to be replaced.  Now the toilet needs to be replaced because it was damaged during the installation.  They had to rent equipment to cut the tiles.

So you can see there are easily foreseeable costs that are not included in the initial project budget.  Home improvement can be a dicey thing and blow through a home owner’s budget in no time.  However, the risk can be alleviated by thinking about the entire process and what are the typical overruns.

Material Costs:

  • Find out from drawings, estimates, and other materials how much items they will need.
  • If it’s construction, either have a good handle on construction costs or have a walk through with an experienced manager.  Remember that not all materials will end up in the finished goods.  (ie.  foundations are usually poured into a form.)

Labor Costs:

  • Calculate how many hours/days/weeks are needed.
  • Calculate payroll taxes and benefits.
  • Determine the labor rates for each position.
  • Determine if there were be substantial HR costs.  For instance, if you need to hire a new team, you will need to interview them, background checks and drug tests.
  • Determine if you need to expand the office space, expand free soda days and do a budget for pizza days.

Overhead Costs:

  • Rare is the large project that can be completed without input from upper management or the other departments.
  • Do you need to hire additional administrative staff?
  • Do you need to lease additional space?
  • Additional Utilities
  • Additional Waste Disposal
  • Additional Insurance

Other Projects:

  • Are there other projects that can’t happen because this project is using resources?
  • Are there other projects will happen because of this project?

Once you have captured all the costs, consider creating a project cost timeline.  Rare are the projects that receive 100% funding from the get go.  Find out when and how often funds will be made available.  For instance, if you have a matching grant, it usually means that your organization needs to have the funds available, you will need to spend the money, and then you will be reimbursed after the project is completed and verified.  Therefore, it’s important to track cash inflows and outflows.  If you need to additional financing, it will cost more.  If you need to run a capital campaign, then you need to know from the get go.

After a rough outline has been created, create a cost sheet in excel or in a project management software package.  It should be flexible, broken into stages and clearly shows the exact estimate.

Since this is an estimate, be sure to include a place to add actual costs.  As the project gets completed, change the number crunching to actual costs.  I like to keep both columns so you can see the before and after.

After the project is completed, I like to review the project spreadsheet to make sure that my next estimate is on target.  Chances are if your process had a blind spot, you would build the same blind spot into another project.