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Discuss the basic principles of cost management


Discuss the basic principles of cost management



1. Burden Rate
- Is the cost of a human resource which takes into consideration more than just his/her salary or hourly rate, for things such as benefits, vacation, holidays, etc.

2. Direct vs. Indirect Costs
- Direct costs are directly attributable to the activities of the project (purchasing hardware or software, labor cost of workers on the team. Indirect costs, the opposite of direct, are costs that are not directly attributable to the activities of the project (overhead rates such as management salaries, energy costs, rents, etc.).

3. Recurring vs. Non-recurring costs
- Recurring costs appear more than once throughout the life of the project (annual hardware and software maintenance).
Nonrecurring costs appear only once (initial purchase cost of hardware and software).

4. Fixed vs. Variable Costs
- fixed costs are expenses whose total does not change in proportion to the activity of a business or project, within the relevant time period or scale of production (rent, insurance). Variable costs change based on the activity of a business or project (project employee costs).

5. Opportunity Costs
- A measure of the anticipated return against the anticipated return an organization would receive on a highest yielding alternative investment that contains a similar risk assessment.

6. Sunk Cost
- Cost expended that cannot be retrieved on a product or service. Money already spent that can not be recovered

7. Life Cycle Costs
- all costs incurred over the life time of the product or service

8. Reserves are dollars included in a cost estimate to mitigate cost risk by allowing for future situations that are difficult to predict. (Critical Chain buffers)

9. Contingency reserves
-allow for future situations that may be partially planned for (sometimes called known unknowns) and are included in the project cost baseline

10. Management reserves allow for future situations that are unpredictable (sometimes called unknown unknowns)
francis1897 answered the question on March 14, 2023 at 08:17

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