5.4.2 Cost Drivers in Activity-Based Costing

In a typical project, there are several cost drivers relating to both direct project costs and indirect costs, such as overhead expenses. It is imperative that the principle cost drivers are identified early in the project planning phase so that budget projections are based on accurate information regarding the types of expenditures that will be incurred, the cost rates to be charged, and the number of cost driver units to be used. The viability and effectiveness of activity-based costing hinges on the early identification of the principle cost drivers, which in turn will ensure the creation of a meaningful control document.