why are direct costs are controllable by the project manage course hero

by Gia Abbott 9 min read

What are examples of indirect costs?

Indirect costs usually come in forms of support costs or administrative fees. Costs like rent on facilities, salaries of administrative staff, and...

What are examples of direct costs?

Direct costs are most likely consumed during a project's operations. Direct costs examples can be raw materials, labor costs, and supplies.

What is the difference between direct and indirect costs?

Direct costs are directly involved costs in a project's activities. Indirect costs are support cost or administrative costs that could be applied t...

Direct Cost

The direct cost definition in project management is an explicit cost incurred or spent on a project. Direct costs are easily identifiable in a project because they are directly involved with every level of activity in a project.

Indirect Cost

Indirect costs in project management include all the implicit costs of a project. Indirect costs are also known as overhead costs or burden costs. Other terms associated with indirect, or burden costs are factory overhead, manufacturing burden, indirect production costs, or labor burden.

Indirect Cost Examples

Indirect costs examples mostly include administrative or other support expenses surrounding a project.

What is non controllable cost?

Non-controllable costs represent costs that are out of his or her control or influence. These usually include costs that are shared by several departments, such as tax, insurance, building depreciation, etc.

What are the two categories of costs?

Costs, when categorized in relation to persons regulating them, can be classified into: (1) controllable costs and (2) uncontrollable costs.

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What are the major types of costs? Which costs are controllable by the project manager? Why is it difficult to estimate mega project (e.g., airports, stadiums, etc.) costs and benefits? Define what a “white elephant” is in project management. Provide a real-life example.

Expert Answer

1))Major types of cost: 1.Direct cost Cost associated with the project work package are called direct cost. This cost is chargeable based on the project work requirements. Example-Raw material cost, view the full answer

What is indirect cost?

Indirect costs are costs that cannot be directly attributed to a specific project, e.g. management, general administration, rental and utility costs. In other words, indirect costs are those for activities or services that benefit more than one project.

Are Indirect Costs included in Project Estimates?

Direct costs are included in the project cost estimate (and budget), whereas Indirect Costs may or may not be included in the project cost estimate. According to the PMBOK ® Guide, 5th Edition the project assumption of whether indirect costs are included or excluded from the project cost estimates are documented in:

How can direct variable costs be controlled?

Direct variable costs: Costs incurred on direct materials and production labor can be controlled by altering the level of production, improving/upgrading work conditions to raise efficiency and reduce wastage of inputs and time resources etc.

What is cost control?

Cost control involves the identification of costs and a set of steps to be implemented to reduce them without adversely impacting the business operations. The first step of cost control is thus to determine the costs. For this purpose, bifurcation of costs into different groups or categories and identifying the factors that impact their incurrence is important.

Why are costs inevitable in a business?

Incurrence of costs in a commercial business is inevitable. They are incurred at each stage of the business operation and are a must to ensure the entities’ smooth functioning. However, the higher the costs of a business, the lower its overall profitability. Thus, business entities always need to focus on managing and controlling their costs.

What is non controllable cost?

Non-controllable costs are those costs which cannot be avoided or altered by management decision (s), especially in the short run. The major reasons why a cost becomes non-controllable are that it is either fixed in nature or arises as a result of some kind of mandatory influence or power of one or more external parties.

What is the difference between controllable and non-controllable cost?

The key point of difference between a controllable and non-controllable cost is that the former is subject to control through routine managerial decisions and actions while the latter one cannot be impacted by management in short run without facing serious trouble or business disturbance.

Why are managers not appraised?

Managers are generally not appraised on the basis of non-controllable costs as they are outside the purview of their authority.

Where does decision making authority for non-controllable costs take place?

The decision-making authority for non-controllable costs generally vests only with top management; for example, negotiation of rental contracts, implementation of large-scale tax saving measures etc. mostly take place at the top hierarchal levels.