Do you think Project Manager must add equipment& utilities depreciation to activities cost estimate as indirect cost, or leave it as business overhead?

This is very tricky questions. Thanks to all colleagues who has provided  their valuable opinion. My understanding is as follows:,

1. Project cost estimate does not include depreciation as depreciation is not a cash expense
2. While calculating  Net Present Value (NPV) or Internal Rate of Return (IRR), you may show the salvage value of any assets /equipment as cash inflow. This is done for economic feasibility analysis of  the project.
3. Depreciation  for current year  is  calculated and shown expense of the current year  in the Income statement
4. Accumulated depreciation is accounted for in the Balance Sheet.of the current year.

As I said.  this is very questions and let discuss thoroughly to  arrive at a perfect solution

Yes, if it is purchase for a specific project then must include in to activities cost estimate as indirect cost. Or if it can be use in general then should leave it as business overhead.

Activities cost estimate. It is a part of cost of equipment and machinery operation.

Every sponsored project has both Direct and Indirect Costs. The direct costs are those that can be specifically and easily identified with a particular project or activity. Indirect costs are those costs that are incurred for common or joint objectives, and cannot be easily and specifically identified with a particular project or activity. These costs are also sometimes called “facilities and administrative costs (F&A)” or “overhead.” The terms indirect costs, overhead costs, and F&A costs are synonymous with each other.

For construction cost estimating of a "particular project" , I always include the construction equipment and utilities depreciation under the "indirect costs" leaving the "overhead" mostly for profit margin and administrative costs.

The general base when we are classifying costs as adirect and indirect is relation with production or services .

if it is realated with production or service directly  it classifies as direct costs,

if not related ....  it classifies as in direct

in our example there are two types of dep. :

equipment dep.

and utilities dep . 

the first classifies as direct costs i think he should leave it as business OH

the second type classifies as indirect costs

Thanks to everyone for sharing experience, actually costing concept may vary based on different purposes ( pricing, control, or decision making ). so for the cost of equipment and utilities i'll classify it as bellow:

- utilities& equipments related to generally running the business such as  head office, transportation and administration. this cost should add to the business overhead as per business targeted plan. investment criteria,net present value, internal rate of return, economic feasibility analysis to be applied in order to maintain a healthy profit and making decision for which projects to be targeted or investing in assets.

- utilities& equipments assigned to a certain project such as mobilizations (usually included separately in work package or to be added as a project overhead or indirect cost)

- Utilities& equipments involved in the project/ projects operations ( in general and not assigned to certain project) should be treated as activity-based costing with cost driver based on labor hour, material consumption, or machine operation hour. cost driver will include depreciation as per balance sheet or business income statement, maintenance, fuel or energy consumption or any operating cost. 

I agree with Mr. Igor answer.

The added value to project can be achieved if the equipments are reused for another project or sold out at depreciated cost, and returned revenue will be added to the project.

Both project can have the benefit, the other project manager will save as he will get the equiments on depreciated cost.

During the estimation, tools and equiments are included in each activities, hence leaving the equipments as business overhead will be good for business owner, but not as individual project.

Depreciation Is added to the cost estimate and it can either be fixed or variable and this depends on the method used to measure depreciation.

And, Depreciation can either be direct or indirect cost based on how the equipment is used.

I prefer to add equipment & utilities depreciation to activities cost estimate as indirect cost as logestic cost also

Thanks for the invitation. I agree with the expert answers.

I think it depends upon its cause and effect related to the project