Skip to main content

Project cost versus product cost

What do you mean by project cost? How is it different from product cost?

Project cost is the total cost of all resources used to complete the project: labour, materials, equipment, services, facilities and overheads, measured from the start of the project to its completion. Product cost is the cost of producing or owning a product, often per unit, including its operation and maintenance over its life after it is developed.

BasisProject costProduct cost
MeaningCost to deliver the projectCost to make, run and own the product
Time spanLimited to project durationProduct's useful life (delivery to disposal)
NatureOne-time, temporaryRecurring (per unit or per period)
IncludesPlanning, design, development, testing, training, management, risk reserveProduction, materials, operation, maintenance, support, retirement
Basis for estimateWBS work packagesUnit cost, life cycle cost
Managed byProject managerProduct/operations manager
Used forBudget, cost control, EVMPricing, profitability, life-cycle costing
Example (accounting software)Rs 20 lakh for development, installation and trainingRs 2 lakh/year for licence renewal, hosting and support

Relation

Project cost is one part of the total life cycle cost of a product.

Life cycle cost = Project cost (development)
                + Operation + Maintenance + Disposal

Importance of distinction

  • A cheap project may create a product that is expensive to operate; decisions should consider life-cycle cost.
  • Project cost is controlled through the cost baseline; product cost through pricing and efficiency.
  • Software example: low initial development cost but high maintenance cost if quality is poor.

Example: Developing a hotel app costs Rs 8 lakh as a project (project cost), whereas hosting, updates and support cost Rs 1.5 lakh each year (product cost).

✓ Answer checked by Claude Opus 5.5 (high effort)

Related questions

All ICT Project Management chapter 9 questions →