Brief explanation of the following with simple examples

a)      Tangible costs and Intangible costs

A tangible cost is considered a cost that is related to an identifiable asset or it could be directly connected with the material used in the production of the products used in the business operations. For instance, we should look at the expenses related with a client who has gotten broken product. The organization would discount the estimation of the item to the client, paying an obvious expense. In such case that the client is as yet steamed at the occasion, in any case, it might provoke the client to whine about the poor assistance to companions. The potential loss of deals, coming about because of the companions hearing the grumblings, comprises of an indefinable expense identifying with the messed up stock.

An intangible cost is price of using a resource that could not be identified or it could be arise with different causes such as social, legal or political reason. For instance, how about we inspect a potential choice by a device organization to curtail $100,000 in representative advantages to boost benefits? At the point when news arrives at the representatives of the cut-back, specialist confidence will probably drop prompting a decrease in efficiency which brings about lower incomes (Post et al., 2002).

b)      Fixed costs, direct costs and indirect costs

Fixed cost is cost that does not change with the fluctuation in the production of the goods or services. For example rent paid for the factory place. As concerned with the direct cost, it is cost that could be easily traced in the certain object that is used in the compiling of the products. Indirect cost is the price that is not legitimately responsible to a cost object, for example, a specific venture, office, capacity or item. Abnormal expenses might be either fixed or variable. Indirect cost incorporate organization, staff and security costs. These are those costs which are not legitimately identified with creation. Some round about expenses might be overhead. Yet, some overhead expenses can be legitimately credited to a business and are immediate expenses.

c)      Sunk costs and prospective costs

A sunk cost is determined to the expense that has been incurred before and it could not be recovered with the further instructions. It is excluded from the future contracts based in the business decisions. While prospective cost is future or past expenses that could be recovered and could be changed with the change in the business strategies (Diao et al., 2016).

d)      Running costs

The running cost of the business that are based on the money that is consumed on the regular basis such as salaries, water, lighting and rent cost etc.

e)      Cost baseline

Cost Baseline is the cost is approved as time-staged spending plan for the task on which the venture cost execution is to be estimated against. As the Cost Baseline is baseline and overseen under setup the executives, changes to the Cost Baseline must experience legitimate change the board forms.

f)       Cost variances

Cost variance is difference between the actual amount of cost and the cost that is estimated for a specific project. For example, if a company had actual expense of $1000 and budgeted expenses were $ 800, cost variance of the project is $200 as favorable.

g)      Management reserve and contingency reserve

Management reserve is the amount of the total allocated budget that is used to control the management purposes that are designed to achieve the certain task in the project. While contingency reserve is held profit that have been put aside to prepare for conceivable future disaster. A contingency reserve is required in circumstances where a business once in a while endures huge trouble, and necessities stores to balance those misfortunes. Contingency reserve is generally utilized by insurance agencies. By setting up a contingency reserve, a top managerial staff is imparting a sign to investors that the held assets are not accessible for appropriation to them as profits.

Two sources of internal and external project funding and assess their advantages and disadvantages:

Any business that is engaged in the commercial dealing of the products and services to get the final profit from the business has to deal with the required money and finance in the market. The capital take into the business by the owner of the business, it is not enough to fulfil the objective of the business with just capital and working capital that could be used with the different sources of the generation classified as internal and external sources of project funding (Baber, Liang and Zhu, 2012).

External sources of finance

External source of finance are the course of action of capital or assets from sources outside the business. It is based on Budgetary Institutions, Loan from banks, Preference Shares, Debenture, and Public Deposits, Lease financing, Commercial paper, Trade Credit, Factoring.

·         Debt financing: it is source of financing that is based on the fixed payment to be made to the lenders such as bank loans corporate and government bonds etc.  

·         Equity financing: equity is the significant source of money for the greater part of the organizations which show the offer in the responsibility for firm and the enthusiasm of the investors.

Internal sources

Internal source of finance of business account that are produced inside the business, from the current resources or exercises, it is based on the Offer of Stock, Sale of Fixed Assets, Retained Earnings and Debt Collection (García-Quevedo, Segarra-Blasco and Teruel, 2018). There are several advantages and disadvantages that could be related to sources of finance in the business. Such as:

·         Allow full control of organization

While company is using internal sources of finance it makes commitments with the external debts that are scheduled to meet the earnings of the business with the same perspective. The main purpose of payment is to make the financial sense to do the work.

·         Improve planning process

Firms will in general be increasingly cautious when arranging new tasks when utilizing internal financing sources with outside financing. There is no vision that you have money to save when utilizing internal sources of account. You're just going through the cash that your organization has earned or saved for a business simply like the one being thought of. That makes it more outlandish that spending on unessential things will happen, which makes positive ways of managing money after some time (Grais and Pellegrini, 2006).

·         It requires extra equity to put in the business

·         Offers several opportunities to invest

·         Limited influence of the company

·         It improves value of the company

As concerned with the disadvantages:

·         It may put negative impact on operating budget

·         Requires accurate estimations

·         Less tax benefits

·         Require high discipline

·         It required time to complete the project

Understanding project cost controls with reference to PMBOK:

Control Costs is the way toward checking the status of the project to refresh the enterprise costs and overseeing change to the cost standard. The key advantage of this procedure is that the cost gauge is kept up all through the project. This procedure is performed all through the project. Checking the consumption of assets regardless of the estimation of work being practiced for such uses has little an incentive to the enterprise, other than to follow the expression of assets. A significant part of the action of cost control includes breaking down the connection between the utilization of task reserves and the work being practiced for such uses. The way to powerful cost control is the management of the confirmed cost standard.

The cost control plan describes how the enterprise costs will be overseen and controlled. The cost standard is contrasted with real outcomes with decide whether a change, restorative activity, or preventive activity is important (Mohamad et al., 2015). When utilizing earned worth examination, the presentation estimation pattern is contrasted with real outcomes to decide whether a change, restorative activity, or preventive activity is essential.

Companies are required to implement cost control process that is difficult but there are some techniques that are used to implement the cost control in the business projects. It based on the techniques that are used in the implementation of the cost control process such as expert judgment, data analysis and variance analysis. Expert judgment is based on the further that are not limited up to variance analysis, earned value analysis and forecasting. Data analysis also used to implement the cost control in the business with the help of earned value analysis and variance analysis. Variance analysis is utilized in EVM, is the clarification (cause, effect, and remedial activities) for cost (CV = EV – AC), plan (SV = EV – PV), and difference at consummation (VAC = BAC – EAC) changes. Cost and calendar differences are the most much of the time investigated estimations. For specific project not utilizing formal earned worth investigation, comparative change examinations can be performed by contrasting arranged expense against real expense with recognize fluctuations between the cost standard and real task execution.

Concluding Remarks

It can be concluded in the end that there are so many elements associated with the project costing and financial management. So, this process should be handled carefully to avoid any particular issues. The project managers should be familiar with all the terms and policies used in financial management so that the proper allocation of assets along with the budget is done. The project management team should know what the tangible and intangible costs are. They should also be aware of any fixed, direct, as well as, indirect costs. Some other costs to be considered are sunk costs, running costs, cost baseline, cost variances, and prospective costs. It should also be understood what kind of internal and external project funding sources are available, and what are their pros and cons. The project cost control is another thing for stakeholders to keep in mind that so that project can move forward in the right direction.

References

Baber, W.R., Liang, L. and Zhu, Z. (2012) 'Associations between internal and external corporate governance characteristics: Implications for investigating financial accounting restatements.', Accounting Horizons, vol. 26, no. 2, pp. 219-237.

Diao, Q., Sun, W., Yuan, X., Li, L. and Zheng, Z. (2016) 'Life-cycle private-cost-based competitiveness analysis of electric vehicles in China considering the intangible cost of traffic policies.', Applied Energy, vol. 178, pp. 567-578.

García-Quevedo, J., Segarra-Blasco, A. and Teruel, M. (2018) 'Financial constraints and the failure of innovation projects."', Technological Forecasting and Social Change, vol. 127, pp. 127-140.

Grais, W. and Pellegrini, M. (2006) Corporate governance and Shariah compliance in institutions offering Islamic financial services., The World Bank.

Mohamad, M.R., Sidek, S., Ghee, W.Y., Abdullah, A.R., Ismail, N.A. and Mustapha, N. (2015) 'Financial access for starting a business: Evidence of internal and external financial sources, and performance of Malaysian SMEs."', Journal of Entrepreneurship and Business, vol. 3, no. 1, pp. 1-16.

Post, L.A., Mezey, N.J., Maxwell, C. and Wibert., W.N. (2002) 'The rape tax: Tangible and intangible costs of sexual violence.', Journal of Interpersonal Violence, vol. 17, no. 7, pp. 773-782.