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6.1 Financial planning - costing


This section provides an overview of costing and then looks at a number of project costs that in the context of community projects can cause problems. These are costs that are frequently overlooked or underestimated.


Overview

Costing is a fundamental part of project planning and is a common sense procedure we are all familiar in our day-to-day lives. It involves identifying all the different project items, estimating (or finding out) how much they will cost and adding them up! Costing becomes complicated when the activities being costed are complicated, unfamiliar or uncertain. Some costs can be more readily anticipated and calculated than others. For example, estimating the purchase costs of an item with a stable price history is relatively straightforward and accurate, whereas estimating the cost of staff time is likely to be more difficult.

Costings are important in deciding whether a project or project component is worthwhile or feasible. While in community projects there will be many other considerations to take into account in determining whether and how to proceed, it would be unthinkable to proceed without considering costs.

Like other planning techniques, costing can be done with different degrees of care and detail. Initially a quick outline and estimating exercise may be sufficient to determine whether to move ahead. Later on, fuller and more reliable figures can be substituted prior to making firm decisions to proceed.

Costing helps in designing project activities and deciding how best to do them. From a costing exercise it also becomes clear which particular project items need to be especially focused on. These are likely to be the items where relatively small differences in unit costs could have a large impact on the overall project costs and/or those items where there is a high degree of uncertainty with a risk that, unless carefully managed, costs could ‘run away’.


Frequently Underestimated Costs

 

If you are unfamiliar with certain costings or relatively new to community project planning it is very easy to underestimate costs. If you weren't a builder it would be very hard to cost an extension job. The same principle applies here, if there is any part of the costed project you are unfamiliar with it is vital that you take some advice either from a professional or from someone who has some previous experience. The budget will have to be tightly costed and it is better to overestimate the costs and be left with a small surplus that can be uses for any extra costs that occur rather than realising halfway through a project that it will need more money to be completed.

Remember don't stretch the initial budget - it is very rare that costs go down during the process. As previously stated, when in doubt - under promise and over deliver|!

Examples of Frequently underestimated costs can be found here.


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Useful links

Costing guidance

Step by step guide to costing

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