Monday, December 19, 2022

How many ways to say "Cost"?

How many ways are there to say "Cost"?
Certainly, more than one!

When "they" ask: 'How do YOU manage cost?", your answer is: 'It's complicated' because there are so many varieties of 'cost'.

Project managers certainly have at least this list:
  • Estimated cost (of course, an estimate has to be made in the context of a plan: scope and schedule and resource plans)
  • Baseline cost (estimated cost at the beginning of a planned period)
  • Re-baseline (Sunk cost, plus a "new" estimate for the ensuing period)
  • Cost variance (the difference or departure of actual cost from the baseline)

  • Planned value (baseline cost input to the project, over time, allocated to planned functional or feature achievement)
  • Earned value (as a proportion of Planned Value actually completed)
  • Cost performance Index (as a 'cost efficiency' measure of how well cost input earns value)

  • Actual cost (measured at a point in time, regardless of achievement)
  • Sunk cost (aka actual cost incurred)
  • Direct cost (costs attributed to this project, and this project only)
  • Indirect or overhead cost (common costs shared across many projects, proportionally)

  • Labor cost (a component of direct cost; does not include overhead labor)
  • Standard cost (used by service organizations and Time & Materials proposals to 'fix' or standardize the "labor cost by category" to a single dollar figure within a range of costs for that labor category. *)
  • Material and contracted services cost

  • Throughput cost (only that part of direct cost required to actually construct value outcomes; often used in combination with Standard Cost)
  • Construction cost (aka Throughput cost, but sometimes also total of direct costs)

  • Incentive cost (paid as direct payments to individuals and contractors for specific performance achievements)
Finance, accounting, and business management have a few more:
  • General and Administrative cost (G&A), mostly for "top-level headquarters" expenses
  • Marginal cost (cost of one more item that does not require more of 'something else' to enable)
  • Cost margin (difference between cost of sales and revenue associated with those costs)

  • Discounted cost (cost after a reserve for risk, usually calculated over time)
  • Depreciated cost (cost accumulated over time, as different from cost in the moment)
  • Cost of sales (direct cost to generate sales)

  • Activity Based Costing [ABC] Overhead costs allocated to specific activity, plus direct costs of the activity.
(*) Standard Cost: As an example, for Labor Category 1, the salaries may range from $1 to $10, but the Standard Cost for this category may be $7 because most in this category have salaries toward the upper end. Standard Cost is not necessarily an arithmetic average within the category; it is a weighted average

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