Project Costing in Didwana

What Is Project Costing?

Project costing is the process of estimating and documenting the total capital needed to set up a project and make it ready to operate. It builds the figure that banks, investors and authorities see as the project cost, and it forms the base for the means of finance, the promoter's contribution and the loan amount.

The total project cost is usually made up of several heads: land and site development, buildings and civil works, plant and machinery, other fixed assets such as furniture, vehicles and electrical installations, preliminary and pre-operative expenses, interest during construction, a contingency provision and the margin money for working capital. Each head should rest on evidence such as quotations, valuation reports, estimates by engineers or architects and statutory costs.

Project costing in this sense is capital cost estimation for a project. It is different from product costing, which works out the cost of producing a unit of output, though the two are linked in the projections.

Who Needs Project Costing?

• Promoters setting up a new unit, plant, hotel, hospital or school
• Businesses planning expansion, modernisation or diversification
• Applicants for term loans and project finance
• Applicants for schemes and subsidies that require a project cost break-up
• Developers estimating the cost of a project
• Startups with capital-intensive plans
• Investors and partners agreeing the capital required

When Is Project Costing Required?

It is not a legal requirement, but a documented project cost is expected when:

• A bank asks for a project cost break-up with a loan application
• A scheme or subsidy requires cost heads and supporting quotations
• The promoter wants to know the funding required before committing
• Investors or partners agree contributions based on cost
• Cost overrun or phasing needs to be planned
• A DPR or feasibility study is being prepared
• The cost of an expansion needs to be separated from existing operations

What Our Project Costing Service Includes

• Understanding the project, capacity and technology
• Land and site development cost, including documentation and stamp duty
• Building and civil work estimates
• Plant and machinery list with supplier quotations
• Utilities, electrical installations and other fixed assets
• Transportation, installation, taxes and duties
• Preliminary and pre-operative expenses
• Interest during construction and financing charges
• Contingency provision
• Margin money for working capital
• Year-wise phasing of expenditure
• Means of finance and promoter contribution derived from the cost
• Documentation: quotations schedule and cost summary

Legal and Practical Considerations

Evidence for each head. Lenders and scheme agencies expect cost heads to be supported by quotations, proforma invoices, valuation reports or estimates from qualified professionals, not by round numbers.

GST on capital goods. Whether input tax credit on capital goods and construction costs is available depends on the nature of the asset and the conditions and restrictions under the CGST Act, 2017, including the blocked credits under Section 17(5) for certain construction of immovable property. Project cost may be shown inclusive or exclusive of recoverable tax accordingly.

Stamp duty and registration. Land purchase or lease involves stamp duty and registration charges that vary by state and should be included. Land conversion, building approvals and statutory fees should also be considered.

Interest during construction. Interest accruing before commercial operations is commonly capitalised into project cost and funded by the financing plan.

Contingency and escalation. A contingency provision allows for cost variation. Its level depends on the project, the stage of design and the lender's view.

Imported machinery. Import duties, freight, exchange rate movements and foreign exchange rules should be considered when machinery is imported.

Common Mistakes in Project Costing

• Cost heads without quotations or supporting estimates
• Leaving out pre-operative expenses and interest during construction
• No contingency provision
• Not including margin money for working capital
• Ignoring stamp duty, registration and approvals cost
• Treating GST inconsistently across heads
• Underestimating site development and utilities
• Cost phasing not aligned with the funding plan

Professional Fees, Government Fees and Timeline

Project costing carries no government fee. Costs of valuation, surveys, drawings and approvals, if needed, are separate and vary by authority and professional. Professional fees depend on the size and complexity of the project, number of cost heads and the supporting documentation to be organised. A project cost statement is typically ready in 3 to 7 working days after quotations and information are received.

Project Costing vs Financial Projections vs Project Funding Structure

Project costing estimates the capital needed. Financial projections estimate how the project will perform. Project funding structure decides how the cost will be financed. Related services include Detailed Project Report, Project Funding Structure and Financial Projections.

Need Professional Assistance With Project Costing?

An accurate, supported project cost is the foundation of a loan proposal. The Legal Bank can help you prepare it. We prepare analysis and documentation; the decision to sanction a loan rests with the lender concerned. Share your requirement to discuss the next steps.