PM Costing in 8 steps to Analyzing Feasibility of a Project.

Costing is one of the elements that cannot be missing in order to determine the feasibility of a project. The precise estimation of the expenses that the project will imply is crucial to stay within the budget and to be able to complete the project. Nowadays, there are different types of specific software that facilitate these calculations, although the calculation of project costs requires a detailed and precise planning that must, in addition, always incorporate a forecast that includes the possible complications that may appear.

How to calculate project costs in practice

The costing of a project can be broken down into eight steps:

1. Drawing up a list of actions: rather than focusing on the activities and tasks, this list must include the steps necessary to bring the project to a successful conclusion. Of course, you should consider all those that have to do with the implementation itself, but also record aspects such as obtaining permits, relocation or change of working hours to be applied temporarily and the steps to be taken once the project has been completed, such as collection and cleaning. It is worth involving members of the work teams in this task, in order to avoid forgetting important aspects that will have an economic impact on the calculation of costs.

2. Time estimate: at this point, it is necessary to calculate how long each step will take. Knowing the time that each action consumes you can estimate the costs involved more accurately.

3. Calculation of internal labour costs: this is the sum of costs related to staff. On the basis of the approximations of the volume of personnel that will be needed during each step of the process and the number of hours that they will work, the resulting price is determined. It may be interesting to make a forecast of the cost of additional staff to be hired for the project and the overtime that may need to be accounted for.

4. Calculation of external labour costs: in any project it is usually necessary to hire the services of subcontractors to carry out specialised work. It is time to compare offers and ask for budgets, based on which you can find out the price per hour, which will have to be added to the total cost of personnel.

5. Investigation of the materials needed to complete the project: materials, tools and equipment must be accounted for, thinking at the time of their intervention in relation to the steps listed in the first stage of costing. Contrasting this estimate with those made in previous projects or requesting the collaboration of someone with more experience in the field can minimize errors.

6. Calculation of costs of materials, tools and equipment: find out whether subcontractors who will participate at specific times will supply their own materials and whether these costs are included in their bids. In all other cases proceed to carry out the calculation based on the volume of materials, their conditions of transport and the terms of rental contract (or purchase if applicable) of equipment and tools.

7. Creating a financial buffer: adding an additional percentage to allow for cost overruns, payment of overtime and increases in supply costs during the life of the project. This buffer can range from 10 to 30%, depending on price variability in the sector concerned.

8. Monitoring budget consumption: as important to the viability of a project as making a good cost calculation is to establish a procedure to track its evolution throughout the duration of the project. Periodic reports from contractors, a spreadsheet or meetings with different work teams can help make adjustments to fine-tune the estimate on the fly. In addition, this monitoring capability allows you to detect cost overruns and be able to act to take action before you lose alignment with plans.