1. Estimating Project Cost The total project cost includes both direct and indirect costs. Materials, supplies, and labor used in a project are called "direct costs". Accounting factors are introduced to cover "indirect costs". fringe benefits = payroll taxes, medical insurance, vacation, coffee overhead = office lease, electricity, computers, telephone general & administrative (G&A) = executive salaries, marketing, admin staff profit = more money for the executives Labor Rates: Unloaded hourly rate = how much you make (before deductions) Loaded hourly rate = how much the company charges for your work 1

2. Example Cost Estimate Assume 1-hour of labor with no direct costs labor = (unloaded hourly rate)*(number of hours) ($28/hr)*(1 hr) = $28 fringe benefits = (fringe factor)*(labor) (0.5)*($28) = $14 overhead = (overhead factor)*(fringe benefits + labor) (0.5)*($14 + $28) = $21 g&a = (g&a factor)*(direct costs + overhead + fringe benefits + labor) (0.15)*($0 + $21 + $14 + $28) = $10 profit = (profit factor)*(g&a + direct costs + overhead + fringe + labor) (0.05)*($10 + $0 + $21 + $14 + $28) = $4 total cost = profit + g&a + direct + overhead + fringe + labor $4 + $10 + $21 + $14 + $28 = $77 2

3. Project Budget How much should you charge your client for the entire project? Four member team with each student spending 15 hours/week. labor hours = (4 students)*(15 hrs/week/student)*(10 weeks) = 600 hours Direct costs include materials and supplies (assume $1,000 here). Using rate factors shown previously, the total cost for this project is estimated at $46,850. 3

4. Financial Data Costs Incurred This Reporting Period = $3,405 Costs Incurred to Date = $19,345 Funds Remaining in Budget = $27,505 4 Cost ($) Week