Indirect Cost

Definition

Indirect Costs are expenses not directly tied to a specific project activity but necessary for the overall completion of the project, such as design fees, testing fees, and costs for furniture, fixtures, equipment, technology systems, and security systems.

Purpose

Indirect costs allocate necessary overhead expenses to projects, providing a more accurate total project cost and ensuring all aspects of project delivery are covered.

Examples of Use

• Allocating a portion of the architect’s fees to the overall construction budget.
• Including costs for IT systems and infrastructure in a new office building project.
• Accounting for security systems installation as part of a hospital construction project.

Related Terms

• Direct Cost: Costs that can be directly attributed to a specific project, such as labor and materials.
• Overhead: Ongoing business expenses not directly attributed to creating a product or service.
• Budget Allocation: The distribution of funds across different areas and aspects of a project.

Notes

Indirect costs are often distributed across multiple projects and require careful accounting to ensure accurate and fair allocation.