Costs are all those particular expenses a company incurs to carry out a specific task, job, or project. Generally, many companies keep estimated costs in mind that they prepare before starting a project. However, top-notch companies prefer hiring specialized companies to get the most reliable budget estimating services to keep them accurate in the estimation. Even then, they must also ensure having the maximum information about civil estimating services.
So, if you do not know much about the costs you need to bear during a construction project, here are some details about the costs for your guidance:
The two main classes of known costs are direct and indirect costs, which are what we know next.
All businesses have expenses. However, it is necessary to note that not all expenses are costs. Only those expenses are a part of costs that are part of the ordinary activity of the company, linked to internal processes, and, of course, essential for the development of the project.
When companies give up a benefit to using the resources for a different purpose, they are known as opportunity costs.
What are direct and indirect costs?
The main distinguishing feature of the direct and indirect costs of a project has to do with the relationship they have with the object, which in this case are the projects on which they depend. Let’s review these two concepts in-depth:
They have a close relationship with the product, project, or service. Therefore, the companies need to make them a part of civil estimating services to get the most accurate results. They are established from the first phases of production and are usually reflected in budgets or cost estimates, a key topic that you can discover and learn much more about by clicking on this link.
Generally, they are costs that are directly associated with the development and completion of a product.
It is also a cost that affects a single activity according to its proportional to the product. So it is easily assignable and quantifiable.
Examples of direct costs
An example of direct costs is raw materials, that is, the materials that have served as the basis for the development of projects. In many cases, they are extracted from nature; in other cases, they are produced by companies in the primary sector.
Also, those related to direct labor are considered direct costs. For example, the payment received by the people who work on the project is usually expressed in hours.
Other examples could be the following:
- Project-related fixes.
- Investment in quality control of the particular product or project
- Hiring key elements to develop the project or product. For example, in a work, it would be the electrical, water, or gas lines.
- Acquisition of services related to the project (in civil works, for example, sewage, garbage, etc.)
On the contrary, these costs are those that are tangentially related to the planned projects or tasks. To estimate them accurately, many experts think that you need reliable budget estimating services. The reason is that they do not apply to a specific product.
The indirect cost can affect several activities or departments of the company. Therefore, it is complex to quantify and allocate since it is not physically incorporated into the finished product, although it is part of the production process.
Examples of indirect costs
For example, the electricity consumption of a factory for its daily operation: although it does not influence the product as such, it is an essential resource for the production chain.
In this category, we must also include the general indirect costs of the administrative or financial type.
Therefore, we could consider the following as indirect costs:
- Investment in advertising.
- Purchase of cleaning or consumer items.
- Office expenses.
- Administrative or technical staff.
- Investment in surveillance.
- Purchase of machinery, tools, or materials.
- Construction or purchase of facilities.
- Cost of organization, administration, and direction.
Keys to calculating direct and indirect costs
Although the difference between direct and indirect costs seems clear, it is not always easy to know which category the project costs belong to. Therefore, here are some practical tips to make this task easier:
- Make a list of the tasks necessary to carry out your project, from the first to the last. Then, the procedure required for its execution is assigned to each task. From there, the costs that must be included in the project management are defined (if you want to know how to calculate the return on investment, consult this article by clicking here).
- Calculate the time it will take for each of the phases. The costs of a project are measured in terms of expenses and time involved in carrying out tasks.
- Consider the costs derived from internal and external labor. In the first case, it is about the internal processes of the company; in the other, the expenses that suppose the payment to subcontractors or third agents.
- Do not forget to include possible losses in the list, for example, raw material that cannot be used for various reasons or machinery that can be damaged. It is always good to have possible contingencies.
These are the direct and indirect costs of a project or product without which, in general, the work cannot be carried out correctly, effectively, and successfully. So, always keep it in mind before initiating a project.