A cost is a price that must be paid for goods and services that are expected to benefit or be required for a project. When determining or assigning costs to specific elements of a project, we say that we are costing these elements. Any project or project element for which a cost is determined is referred to as a cost object. Understanding the various types of costs that face projects is critical for effective budgeting and project management. Companies can use cost information in several ways, such as to evaluate their performance and increase the efficiency of their business, to set prices, to bid on new projects, and to inform important management decisions like investing in new equipment, changing suppliers, or discontinuing existing projects or products.
Due to the complexity of engineering projects, we typically categorize costs so that they are easier to identify and analyze. There are several different ways to select these categories, depending on how the budget is going to be used.