Calculating project costs correctly and accurately is a must if your project budget is to have any merit at all. Too often, projects come in way over budget because their budgets were not calculated correctly to start with. To calculate a project budget correctly, all factors must be taken into consideration, and contingencies must be planned for. Cost overruns are inevitable with any project, but they can be controlled so that they have minimum impact when they do occur. Follow a few guidelines which create a check list of sorts to accurately include and account for these unforeseen costs otherwise known as budget overruns.

How to Calculate Project Costs

Step 1.

Begin formulating your budget by looking at the entire project as a whole. Look at what is to be accomplished, how it is to get done, and the timeframe for getting it done. Consider variables which will impact project timeline and scheduled completion. Become familiar with area weather if your project is weather-sensitive. Take into account proximity to and accessibility of your three major costs: labor, equipment and materials. (Proximity and accessibility can and will affect how and when your project gets done.)

Step 2.


working on a project image by leemarusa from

Break down the project into four separate units or completion phases to set total project costs. Include 30 percent overruns for each of the four calculated costs. Set up each part of your budget to the high side by at least 10 percent as you calculate cost projections. Strive to anticipate and be prepared for events which will impact every project cost.

Step 3.

Set labor pay rates. Do this by taking a flat rate and multiplying your flat rate by the number of completion hours you assign per task completion. For example, set your pay rate at $100 per hour. Use your experience and industry standards to estimate that particular job will take 10 hours to complete. Your labor cost calculation will be $1,000 for the completion of that task. Record this cost for the purposes of establishing your budget as $1,100 ($1,000 + $100 for the 10 percent allowance).

Step 4.

Calculate the material costs using flat rate industry pricing standards. As in Step 3, assign each task a set number of material units. Multiply that set number of material units by the number of tasks to get your material costs per phase of your project. For example, if concrete is currently $90 per square yard, and you need 10 yards of concrete poured to complete a project phase, multiply $90 times 10 to get the $900 material cost for that phase. Figure needed materials based on project dimensions and construction guidelines. Consider proximity and availability of access as you figure material costs.

Step 5.

Follow the same formula example in Step 4 to calculate equipment costs. Enter or list the equipment needed. Write down a flat rate pay per hour of use for each piece of equipment. Calculate this flat rate cost by multiplying its hourly rate times the amount of time industry standard and your experience tell you it will take to complete that piece of equipment’s part of the project. (A tractor costing $150 per hour to run and requiring 10 hours of flat rate use will cost $1500.)

Step 6.

Include within your project costs what are called equipment per-use costs. (This will be equipment that you pay to use per equipment setup and use. Cranes and other super heavy duty equipment fall into this category. Since costing out this expensive equipment is flat rate-prohibitive, cost per use will curtail the immense costs.) Think ahead to the various phases of your project and plan your per-use costs accordingly. Total all costs and add an additional overrun percentage to develop an accurate cost projection.


Understand that budgets must be flexible to a degree but not wildly off target. Use industry-accepted rates for your calculations to give your figures reliability.


Figuring to the high side of cost projections gives you room for adjustment when those unforeseen events threaten your projects.