Fixed Costs:

Fixed costs are expenses that stay the same and do not change throughout the project lifecycle. These costs are independent of the amount of work involved with the project and remain constant regardless of the project's output or activity level. Fixed costs are typically incurred regardless of whether the project is successful or not.

Examples of fixed costs include rent for office space, salaries of employees, insurance premiums, and depreciation of equipment. These costs are considered essential for the operation of the project and are incurred regularly at a fixed amount.

Variable Costs:

Variable costs are expenses that change with the amount of work involved with a project. These costs vary in direct proportion to the level of activity or output of the project. As the project's workload increases, variable costs also increase, and as the workload decreases, variable costs decrease accordingly.

Examples of variable costs include the cost of raw materials, direct labor costs, and utilities. These costs are directly related to the volume of the project's output or activity level. Variable costs can be controlled by managing the project's resources efficiently and effectively.

Direct Costs:

Direct costs are expenses that can be identified and billed directly to the project. These costs are specifically attributed to the project and can be easily allocated to a particular task or activity within the project. Direct costs are essential for the completion of the project and are incurred as a result of specific project activities.

Examples of direct costs include the cost of materials used exclusively for the project, wages of project-specific employees, and equipment solely dedicated to the project. These costs are directly tied to the project's objectives and can be easily tracked and accounted for.

Indirect Costs:

Indirect costs, also known as overhead costs, are expenses that are not directly attributable to a specific project or task. These costs are incurred for the overall functioning of the organization and cannot be easily allocated to a particular project.

Examples of indirect costs include administrative salaries, office supplies, utilities, and general maintenance. These costs are shared among multiple projects or departments within the organization and are allocated based on a predetermined allocation method (e.g., percentage of direct costs).

Sunk Costs:

Sunk costs refer to expenses that have already been incurred and cannot be recovered or changed. These costs are not relevant for decision-making as they are already spent and cannot be recouped. Sunk costs are not considered when evaluating the feasibility or profitability of a project.

An example of a sunk cost is the money spent on research and development for a project that ultimately failed. Regardless of the outcome, the money invested in R&D cannot be recovered, and it is not considered when making future decisions.

In summary, fixed costs remain constant throughout the project, variable costs change with the level of activity, direct costs are directly attributable to the project, indirect costs are shared among multiple projects, and sunk costs are expenses that have already been incurred and cannot be recovered.