GEOG 871
Geospatial Technology Project Management

Cost Management

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Cost Management

Project cost management includes preparation of the project budget as part of the project planning process and financial management during project execution. Projecting budgeting involves making an estimation of resources required to complete a project. In a project management context, a resource is a tangible entity to which a value may be assigned. Resources may be people (expressed in labor time), monetary (money used for project expenses), and equipment. In preparation of a budget, each of these types of resources is expressed in monetary terms (i.e., direct expenditures and costs for labor time or equipment usage). Depending on the type of project, there are a range of cost categories that should be included in cost estimation. Project resources typically include staff time, monetary expenditures, and system or equipment usage. For GIS projects, it is good practice to examine and tabulate all costs that are attributable to the project such as:

  • labor time of the organization's existing staff or new staff hired for the project (normally measured as a monetary rate by time--hour, day, or month);
  • contracted staff (cost for project team members provided through a contract with external organization or company);
  • contracted services--costs for specific deliverables provided, under contract, by a consultant or contractor (e.g., GIS consultant providing GIS design and development services, GIS contractor performing database collection or development, firm providing aerial data collection and processing);
  • computer hardware, network, equipment, and system maintenance and administration services (costs for the purchasing or leasing of computer servers, network devices, desktop computers, mobile devices, survey equipment, etc., and paid services for system maintenance);
  • computer software (costs for licensing of server and desktop software and mobile device apps required for the project). Also may include ongoing costs for Web-based software and applications. This includes cloud-based services, also known as "software as a service" (SaaS). Applications and services provided by the Esri ArcGIS Online service is a prominent example;
  • network and Web services (costs for provision of cellular or broadband communication services, Web hosting services, and related costs);
  • GIS data (costs for the purchasing, licensing, or subscriptions to existing spatial data provided by an outside parties);
  • training (costs for specialized training, such as software training for team members, which is necessary for the project); and
  • travel expenses (costs for ground and air transportation, lodging, meals, and other costs associated with travel required for the project).

Direct and indirect costs are related concepts explained below:

  • Labor costs reflect the costs, and value, for people working on a project. Labor is typically measured in time--specific time in which a team member is working on the project (usually in hours or days). In most organizations, labor time has a monetary value that can be quantified on the basis of that person's total compensation (pay rate and benefits). Such quantification is typically calculated for employees in private-sector firms (e.g., dollar rate per hour) but is less often formally done for government agency employees.  But the point is, labor time has a cost to the organization which can be derived based on the employee's compensation and work time.
  • Most of the items in the list above present typical direct costs which are costs for tangible products or services acquired and tracked specifically for the project. Direct expenditures are easy to understand in the case of travel expenses or computer hardware and software purchased or leased specifically to support the project. Direct costs also include monetary expenditures for purchased services (e.g., costs for a GIS contractor for data collection of application development) as well as other monetary costs specifically assigned to the project.
  • Indirect costs represent costs that are incurred by an organization carrying out a project but which are not specifically accounted for or tracked as part of a project.  As such, indirect costs are often tallied for the entire organization, and then prorated to individual projects by the organization. Indirect costs are sometimes called overhead, and includes a range of things such as: building rent and operational costs (utilities, maintenance, custodial services); insurance fees; tax payments; employee training not attributable to a specific project; and costs for office furniture, equipment, and computer hardware which is not accounted for through specific projects. In private companies, staff time which is not billed to a specific project, and therefore does not bring in revenue (marketing and sales staff), is also considered overhead. An indirect cost in one organization may be managed as a direct cost in another. For example, some organizations may have copy machines that keep track of identity numbers and allow copies to be billed back to individual projects. In the past, some GIS labs with processing capability that was high end at the time accounted for and billed projects based on central processing unit (CPU) usage. Many government agencies and private companies account for overhead costs as a "multiplier" applied to employee costs. For instance, private GIS consulting companies typically establish hourly or daily monetary rates that take into account the employee's base salary and benefits along with physical overhead and the company's non-billable employee costs (see explanation below).

When organizations are calculating the monetary rate to for labor time expended on a project, it is typical to start with the cost of an employee's total compensation also called the base rate (pay and direct benefits). Then, apply some additional costs expressed as multipliers.  A multiplier is a factor applied to the base rate to reflect other costs of the organization beyond the employee's compensation and to determine the billing rate for that person or for an entire job classification.  Here's an example: An employee's base rate (total compensation) is $40 per hour and the overhead multiplier used by the organization is 1.5. The billing (or "billable") rate for that person would be $60.00 per hour. Private companies may also apply another type of multiplier to take into account expected profit. The profit multiplier is normally expressed as a percentage of the base rate.  Using the example above, if the targeted profit is 20%, add another $8 to the rate yielding $68 per hour. In practice, some organizations may have other types of multipliers that are also applied to calculate labor rates.  Also, private companies, in setting their billable rates, take into account market forces, level of demand, and other factors.