Calculating Cost of Project


While it is important to do Cost Benefit Analysis (CBA) to be able to achieve best possible result during project, calculating cost correctly plays a big role. Following are the factors which decides cost

  • Systems development cost – specifically labor cost
  • Hardware cost
  • Software cost
  • Project execution cost
  • Project client cost
  • Implementation cost
  • System operation & support cost

While there are few other types of cost that we may come up in specific situations, in general – if we have appropriate check list to find out above costs, it will help the project management team in

  • Providing appropriate CBA
  • Defending against budget Cutbacks
  • Evaluating impact of changes in scope
  • Reevaluating the project cost at any given moment during the project

Let’s look at each of the cost category and see what is applicable in your project

System Development & Labor Cost

  1. Different skill set needed to execute the project
  2. Their average rates in your organization
  3. Their average rates in the open market
  4. The phases that you have in your whole delivery process – for example requirement, design, system infrastructure, code, unit test, integration test, solution test, UAT Support, documentation, training, etc.
  5. Project management cost – which must include configuration management, quality control, communication management, billing / invoicing , administrative overhead, and support needs

Hardware Costs

  1. Labor cost to manage requisition-quotation-PO life cycle
  2. Labor and capital cost to manage inventory (if needed)
  3. Capital cost to  procure hardware
  4. Hardware installation fees
  5. Hardware maintenance fees

Well, many times as a software company – we ask customer to find their own hardware vendor and configure things as per our specification. In such case you may like to just include the cost of verifying availability of required hardware setup for your usage. You must make sure that SoW explicitly mentions about who owns the responsibility of setting the environment.

Software Costs

  1. Labor cost to manage requisition-quotation-PO life cycle for software, including OS, Database, framework licenses
  2. Purchase cost of infrastructure cost – for example Conference / meeting places, performance enhancement tools, project management tools
  3. Labor cost to install and configure software

In case you have delegated this responsibility to client Project Management team, you still need to make sure that you check for the availability and suitability of these software as per the recommendation given by your technical team. This should be explicitly mentioned in your SoW.

Project Execution Costs

  1. Cost for travel and stay
  2. External consulting / training
  3. Training your own staffs
  4. User participation with client and their project team
  5. Any material required during the project execution (pens, pencils, papers, files, etc.)

Implementation Costs

  1. Travel and stay cost
  2. Any additional effort involved during the implementation

System Operation Cost (Payback period)

  1. Labor cost for managing the operations
  2. Material and supplies costs
  3. Communication
  4. Hardware and Software maintenance – including leasing
  5. Backup and Recovery
  6. Projected cost of hardware & software upgrades

While I have tried to summarize most of the cost involved during an IT project, it is important to understand that we commit for a project in various circumstances. Many times you may be using some of your prior works, which will reduce overall cost, but you may like to get paid for that. Many times customer would seek insurance for quality and delay, you may like to add additional costs to ensure such quality expectations in timely manner.

The bottom line is – you need to think of each and every possible activities during the project. Calculate probable cost of each activities and provide cost on that basis. If certain discount needs to be provided, make it explicit.

Walking Tree is a software solution providers and we have tried to put most of these concepts in our Project Management implementation of our ERP framework, EagleRP.

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