# The cost of a project activity: Calculating the activity and/or resource costs

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The calculation of costs is an important aspect of project scheduling and control. In this section, two main types of costs are discussed, each consisting of two subtypes. The total activity cost consists of the sum of all subtype costs, as will be explained in this article. The two main types are as follows:

• Activity cost: a fixed or variable cost that is set for an activity and not for a resource
• Resource cost: a fixed or variable cost for the use of resources when demanded by the various project activities

## Activity cost

A fixed cost can be assigned to an activity without having any link with its resource assignments. It is a fixed amount of money, independent of the duration of the activity and the work content for one or more resources assigned to this activity.

A variable cost per time unit can be assigned to an activity regardless of its use of renewable and consumable resources. It is a variable amount of money which is dependent on the activity duration and can be used to describe resource-independent costs such as activity overhead.

## Resource cost

The cost per use is the cost for the use of a resource that can be considered as a one-time cost incurred every time the resource is used by the activity. The per use cost for a consumable resource is applied only once from the moment the resource is used. The per use cost for a renewable resource, however, depends on the resource demand of the activity (i.e. its resource requirement and not its total work content). As an example, the cost per use for a consumable resource like gallons of gasoline needed to feed excavators necessary during a construction project is € 250 per delivery, regardless of the amount of gallons brought per delivery per truck (obviously, this is cost of delivery and not the cost for the gasoline itself, which will be measured by the cost per unit discussed hereafter). The excavator itself, on the contrary, is a renewable resource and has a per use cost of € 1000. Working with 3 excavators in parallel to finish the activity makes the total per use cost equal to € 3000.

Unlike the one-time cost per use, the cost per unit is a cost that typically depends on the amount of the resource demanded by the activity and its duration. The calculation of the total activity per unit cost differs according to the resource type, renewable or consumable, as explained along the following lines:

• Renewable resources: the costs per unit are cost rates calculated per time unit (hours, days, weeks, etc.) and per resource unit and hence are based on the total work content (= activity duration x resource demand) of the activity.
• Consumable resources: normally, the use of consumable resources by project activities is expressed in units that are typically different from time units. Consequently, the costs per unit are monetary rates typically not calculated per hour but expressed in other units (per weight, per length, per pallet, etc.). However, there are examples where consumable resource use is expressed as a time dimension. To that purpose, the assignment of a consumable resource to an activity can be done in two alternative ways:
• Fixed use: the unit for the cost/unit calculation of a consumable resource is anything but a time dimension. It is an indication that the quantity of the resource used by an activity is independent from its duration. A typical example is the cost per unit for materials, such as bricks needed to build a wall, which is equal to € 100 per pallet, regardless how much time it takes to build that wall. The gasoline example for the excavator could also be considered as a consumable resource with fixed use, since its cost completely depends on the amount used, expressed in gallons, to finish a certain activity.
• Variable use: the unit for the calculation of the cost/unit for a consumable resource can be expressed in a time dimension (hours, days, ...). It is an indication that the quantity of resources used by an activity changes proportionally as its duration changes. In the gasoline example, the resource use could have been specified as the number of gallons needed per day. In this case, it is implicitly assumed that the daily occupation of the excavator is known and more or less stable, and the consumable resource of gasoline then depends on the daily gasoline consumption of the excavator, and hence, on the number of days it takes to finish that activity with the help of that excavator.

The distinction between fixed and variable use is often a matter of choice made by the project scheduler to express the consumable resource consumption needed to finish that activity. For example, if the assignment units value for a consumable resource is, e.g. 100 tons for an activity with a duration of 10 days, the total resource consumption is 100 tons. However, if the assignment units value for that resource is 100 tons/day (variable), the total resource consumption is 1000 tons (fixed).

The resource cost options are displayed in table 1.

Table 1. Resource cost options (Source: ProTrack 3.0)
 Renewable Consumable limited availability during scheduling no limited availability during scheduling cost/use cost/use * resource demand cost/use cost/unit cost/unit * activity duration * resource demand Variable: cost/unit * activity duration * resource demand Fixed: cost/unit * resource demand

## Total cost

The total activity cost is equal to the sum of these cost factors as shown in the formula of table 2.

Table 2. Summary table for the “total activity cost” calculations
 Total activity cost  =  fixed activity cost  +  variable activity cost * duration + cost/use * resource demand (renewable resources) +  cost/unit * work content (renewable resources) + cost/use (consumable resources) + cost/unit * resource demand * duration  (variable consumable resource with units expressed in time units (hours)) + cost/unit * #units  (fixed consumable resource with units not expressed in time units)

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