Share on Facebook

Share on Twitter

Share on LinkedIn

Share on Email

Share More

Introduction: “Project costing” in a very interesting and important area in Costing for Cost & Management Accountants ( CMAs) to understand and to get vast experience in the field of Costing. Project Costing is a different from other Costing areas like Product Costing, Service Costing, etc. Project Costing is a mixed nature costing of all this costing. I would like to elaborate in this article about the critical role of a CMA in this area.

What is Project:  A project is the collection of several activities to complete or achieve one decided or identified goal or object. The all activities in the project may be dependent or independent, sequentially or non sequentially, related or non related, but the final object or goal of the project is same. Today in Global scenario several activities in Government or Non Government has been taken up the project based activities. In these circumstances the role of CMA in Project Costing is very important and critical one.

Indian Projects Scenario: As I mentioned in the previous point, globally several works & activities in Government or Non Governments organization has been taken up as project based activities to complete the Job. In Government Several Public infrastructure and non infrastructure, developments activities given in the form of Projects. Public Private Partnership (PPP Model), BOOT, BOT projects are major examples in this areas. So this is the big area to develop the career and growth for Indian CMAs.

Project classification: Academically the projects types have been classified based on type of activity, Location, completion time, Ownership, Size and based on need.  Very famously based on need classified as follows:

a. New project- Activity to completely taken up the new work

b. Balancing project- Activity to balance the work with other work in same place

c. Expansion Project- Expanding the existing activities to the certain level.

d. Modernization Project- Update the existing activities with latest technology.

e. Replacement Project- Replace the existing activities with alternative better activity.

f. Diversification Project- Diversify the current activity to other activity

Project Phases:  Generally project phases will be classified starts from

a. Need of Project

b. Project initiation & Idea

c. Project proposals & Evaluation

d. Project Planning & Design

e. Project execution & Implementation

f. Project Completion & Commissioning

g. Project post completion & Maintenance

CMA Role in Proposal &Evaluation stage: Once need of project identified & project idea derived, Project proposal stage starts. In the project proposal stage the role of CMA is very crucial. Project proposal stage has lot of assumptions based on the previous experience or similar nature of other projects.  Each & every assumptions have justification or valid reasons. Cost & Management Accountant need to evaluate the every assumption and validate the same & derive the cost of each activity and analyze the same. Here the role of CMA is evaluate the given proposal whether viable economically, commercially and financially.  Also need to analyze the project profitability and the rate of return to the promoter or project developer. As I mentioned above project costing is the mixed nature of all costing like product costing, Unit costing, Service costing etc. in the evaluation stage CMA has to face lot of challenges to derive the costing in a formatted manner to analyze the results. Also while analyzing the assumptions given by the project team, CMA need to be very balanced way between Professional Costing & Practical way of projects, because some of the project assumption may be very unique for the particular project and need a very depth costing study for the particular area.

CMA Role in Planning & Design: Once the Proposal has been evaluated and decided economically, commercially & financially as fit, then the project planning & design stage will be start, while planning & design stage involves the estimation of Capital Cost (Capex) for the development & execution of the project and manner of execution of the project and Operation Cost (Opex) involved has to be decided. Here the CMA role will be analyze the each & every Capital & operational costs & recommend to the management for best alternative ways which makes the project in more economical & profitable.

CMA Role in Execution & Implementation stage: Here the CMA role will be monitoring role which, he/she need to compare, control & monitor the Capital Cost & Operational cost which in line with the Cost estimated during the planning stage. CMA has to be more cautious during this stage which involves continues monitoring of the each cost will be match with the cost allocated to the project implementation and the each variance will be analyzed thoroughly and  corrective measure will be taken up on timely basis.  

CMA Role in Project Completion & Commissioning stage: Here the role of CMA will be very analytical. Because this stage has lot of settlements, transfers, valuations etc. CMA has to study the project completion and handing over criteria and evaluate all the valuations, transfers & settlement in professional manner and give recommendation to the management for commission the project in time & perfect manner.

CMA Role in Post Completion & Maintenance stage: Here the role of CMA will be analyze & recommendatory nature. CMA has to analyze the final project actual with the estimated project proposals, costing & budgets and need to prepare the variance report and justify correct reason for variances and recommend the better costing plans for the further proposals & Projects. If the project having post closure maintenance, the costing for the same will be arrived and recommend to the management and monitor the maintenance cost.

Professional & Career growth for CMAs in Project costing: In the Costing ABC analysis is the very important method of analysis the Cost. Such is called Activity Based Costing system. Project costing system involves Costing of lot of several & different activities and a CMA has huge opportunity to introduce and evaluate the ABC system in Project Costing also.

Conclusion: Role of CMA in Project Costing is a very important one and also as CMA the professional growth in this area is very much certain. In addition to that CMA has very vast opportunity to learn the new type of costing system.

Thank You.

CMA Ramesh Krishnan

Published by

CMA Ramesh Krishnan
(Cost & Management Accountant)
Category Career   Report

3 Likes   77 Shares   21174 Views


Related Articles


Popular Articles

Follow Book Book Book Business Course caclubindia books

CCI Articles

submit article

Stay updated with latest Articles!