Overhead Costs in Project Management – Definition and Meaning
Overhead costs (also known as indirect costs) are expenses that arise in the course of a company’s operations but cannot be directly attributed to a specific project, product, or service. They are used to capture the total costs of project implementation or service provision. Typical examples of indirect costs include office rent, administrative staff salaries, general IT infrastructure expenses, or energy costs. These costs are often distributed to individual projects or cost centers using an allocation key (overhead rate).
Example, best practice, and additional information
In a consulting company, costs such as office rent, central secretarial services, and general office equipment might be classified as overhead costs and allocated proportionally to different client projects. A best practice is to systematically record these costs and allocate them to cost objects (such as projects) using a transparent and appropriate method. This aligns with cost management principles according to the PMBOK Guide and supports agile principles of cost transparency. Proper recording and distribution of indirect costs help to understand the actual profitability of projects and make informed pricing decisions.