Estimated and expected cost of a new project
When planning any new project, whether industrial, commercial, or service-oriented , knowing the estimated and projected costs is one of the most important steps to success. It helps you set a budget, ensure financial sustainability, and make the right decisions before implementation begins.
The difference between estimated cost and expected cost
- Estimated Cost: The cost calculated before the start of the project based on previous data and similar experiences.
- Projected Cost: The cost you expect after analyzing all the data and potential variables.
Illustrative example: Setting up a small restaurant
- Estimated cost: Purchase of kitchen equipment + shop decor + first month's rent = 150,000 EGP
- The projected cost after considering the variables: 180,000 Egyptian pounds due to fluctuations in food prices and labor costs.
Steps to calculate the estimated cost
1. Identifying the key cost elements
- Fixed costs: rent, equipment, licensing, insurance
- Variable costs: raw materials, daily labor wages, electricity and water bills
- Indirect costs: marketing, training, administrative expenses
Practical example:
| Item | Cost type | Estimated cost |
|---|---|---|
| oven and equipment | Fixed | 40,000 Egyptian pounds |
| Raw materials (sugar, flour) | variable | 10,000 pounds/month |
| Workers' wages | variable | 15,000 pounds/month |
| Marketing | indirect | 5,000 Egyptian pounds |
2. Using equations
Basic equation:
التكلفة المقدرة = التكاليف الثابتة + (التكاليف المتغيرة × كمية الإنتاج)
Example: Fixed costs £50,000, variable costs per unit £20, expected number of units 1,000 units:
التكلفة المقدرة = 50,000 + (20 × 1000) = 70,000 جنيه
3. Adding a safety margin
To avoid surprises, it is preferable to add 10–20% for variable and indirect costs.
Example: 70,000 x 15% = £10,500 → Expected cost = £80,500
Professional cost calculation tools
- Excel spreadsheets or Google Sheets to dynamically calculate total costs.
- Project management software such as MS Project and QuickBooks .
- Break-even Point Analysis:
نقطة التعادل = التكاليف الثابتة ÷ (سعر البيع لكل وحدة - التكلفة المتغيرة لكل وحدة)
example:
Plastic factory project:
Fixed costs: £300,000
Variable costs: £50,000 per month
Estimated cost with a 20% margin: £420,000
Summary
- Calculating the estimated and expected cost is a key step for any successful project.
- Use tables, equations, and percentages to accurately estimate costs.
- Add a 10–20% safety margin to cover any variables.
Good financial planning saves you time and money and greatly increases the chances of your project's success!
Read also... Cost accounting in large companies