Different types of project overhead costs fall into many of the same categories as ordinary project expenses. They can be fixed or variable, operating or capital, and can include such things as salaries for workers, rent, materials and equipment, and any other expense type that is typical to project management. What makes these expenses part of this category is how they apply to specific aspects of the underlying contract.
Projects are managed as self-contained business units with their own budgets, assigned staff, and allocated resources. To determine the profitability of a project, project managers are tasked with identifying expenses that are specifically generated to complete the project. These expenses are tied to a project's deliverables, which refers to the specific list of tasks to be completed for the project to be finished and the contract satisfied.
In an ideal world, every expense generated by a project would be tied to a specific deliverable. Reality often interferes, however, and certain project expenses tend to straddle different deliverables or apply to all of them at once without the ability to assign most of the expense to one deliverable over the others. These types of umbrella expenses are known as the project overhead costs.
Any type of project expense can end up in this category, including salaries for general project managers, for example. These managers spend time organizing the project as a whole, and it can be impossible to allocate time between the various deliverables. Another common cost type is general administration, which can include the staff hired to do the accounting for the project, supplies used in the office, general secretarial help, or the cost of running a main project office. Overhead costs can include a broad array of ordinary expenses, such as a storage facility used by the whole project or travel expenses for project managers to attend meetings.
It is important to distinguish between project overhead and the overall general and administrative overhead for the entire business. Project overhead costs, generally, are specific to the project. The business has its own overhead that it allocates to clients and projects as a percentage of indirect costs. Even though some costs are considered overhead to the project, therefore, they are still direct project expenses. A project contract would be assigned an additional percentage of indirect costs that come from the administration of the entire business.
