PMP® Exam Preparation – Understanding Cost Types

Now we know how Clint Eastwood feels about keeping film production costs under control. Cost management is a primary job function for project managers as well, and it remains a priority throughout the project lifecycle. It is one of the three core functions of project management, along with the scope, quality, and time management.

Here’s a video on how to get started with PMP® certification training. I hope you find it useful.

Understanding the differences between types of project costs is critical for those aspiring to pass the popular Project Management Professional (PMP)® certification. We’ve created an overview of project cost types and how they apply in various sample questions to help you prepare for the PMP certification exam in this article.

Cost Varieties

Fixed costs remain constant and do not change throughout the project’s lifecycle. Setup costs, rental costs, and other related costs are examples of fixed costs.

Variable costs are costs that vary according to the amount of work involved in a project. Variable costs include hourly labor, material costs, supply costs, bulldozer fuel, and so on.

Direct costs are expenses that are charged directly to the project. Direct costs include team travel expenses, team wages, costs incurred for employee recognition and awards, and so on.

Indirect costs are costs that are shared and allocated across multiple or all projects. Taxes and fringe benefits are two examples. Another example of an indirect cost is the salary of an architect or project manager, which is split among several projects. The salaries of their team members would be direct costs because each of them is directly working on a specific project and their salary is a direct cost to the project. However, because the project manager is assigned to multiple projects, the salary costs incurred are indirect costs to the project.

Sunk costs are costs that have been incurred on a project but have not contributed to the project’s objectives. Consider sunk costs to be spilled milk. If they are unrecoverable, they must be treated as if they do not exist. Assume, for example, that you hire a freelance developer to create your website in Java. However, after some time on the job, the developer leaves for personal reasons. When you hire another developer for the job, he convinces you that he can do a better job using.NET technologies, and you decide to build the website with NET. In such a case, the costs incurred by the freelance Java developer could be considered sunk costs.

Question and Answer Examples

1) John works for ABD Consultants Pvt. Ltd. as a project manager. For this project, he felt it was necessary to arrange for special skills training for his team members. What kind of expenses will he have on the project for this training?

A.Direct \sB.NPV

C.Indirect \sD.Fixed

Answer: A. Because the skills training to upgrade their skill sets is directly related to this project, it is considered a direct cost.

Learn about the various types of costs involved in project management, as well as the key differences between them.

2) Bob must analyze project costing in order to find ways to reduce overall project costs. Bob would benefit from concentrating on:

A. Fixed and variable costs

B. Direct and Indirect Costs

C. Variable and direct costs

D. Direct and Indirect Costs

Answer: C. Direct costs and variable costs are costs that are directly attributable to the project or that vary based on the amount of work completed. As a result, Bob could examine these costs in order to find ways to be more efficient and reduce them.

3) Several rooms in a building are rented out to house a group of workers during a project. These are some examples of room rental fees:

A. Cost Variables

B. Fixed Expenses

C. Overhead Expenses

D. Loss of Opportunity

Answer: B. Room rental costs are considered fixed costs.


When developing project estimates, project managers must first understand the various types of costs that may be incurred. The PMP® certification exam will almost certainly include many questions on the subject, so make sure you have reviewed each type of project cost and can determine which type of cost is used in different scenarios.

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