Why is it important for project managers to understand the fixed and variable costs of a project? Give examples of variable and fixed costs that you are familiar with from your own past project work.
Instructions: This discussion involves the student posting a substantive response of at least 250 words and reference the textbook(s) and at least one (1) scholarly journal article. The journal article should provide substantive support to your answer. In addition, to the initial post of the discussion, the student is required to respond to any TWO (2) classmates responses. These responses should be substantive and a minimum of 100 words.  A response such as I agree or I liked what was said is NOT substantive and will not be counted for course credit. Please be aware of time constraints as all initial responses to discussion questions are due by Thursday evening at 11:59 p.m. EST and discussion question responses are due on Sunday evening at 11:59 p.m. EST

Responses: 

1) for Aditya

 The two main costs that every company incurs while producing goods or services are Fixed cost and Variable costs. As the name suggests, Fixed costs are the costs that remain constant throughout the lifecycle of the project irrespective of the volume of production, time and other factors, while Variable costs are costs that fluctuate depending on the volume of production, MOQ of components and time (Kloppenborg, Anantatmula, & Wells, 2019). A project manager should be aware of variable and fixed costs to better analyze total cost of ownership of a good or service. 
One of the important KPI a project manager is assessed on is whether the project was over the budget and for a Project Manager to effectively predict a budget, he / she should be aware of all the cost component that will be involved in that project.  A Project Manager cannot accurately predict the total cost of the project without understanding the difference between fixed and variable costs (Tabbush, 2018). I work in the Manufacturing Industry and all the projects I have worked on are related to manufacturing of an actual product (goods). I have performed several Make vs Buy analysis to understand what the Total cost of ownership is of Sourced product vs something that is made in house. Even if I as a Project Manager decided to source the product from another supplier, I would still have to incorporate all the fixed costs as it relates to maintaining my own plant and production facility into the final cost of the product (offered by the supplier). These fixed costs include DC receiving and inventory holding costs, insurances and taxes, tooling depreciation costs, taxes, indirect costs (IT Function cost, HR cost, Finance cost and other corporate function costs) and maintenance costs.  Variable costs that I consider as a part of product cost are cost of direct labor involved to make the product, MOQ of the direct material needed to make the product, shipping costs, packaging material cost and other commodity pricing.

2) for chetankumar
  
Why is it important for project managers to understand the fixed and variable costs of a project?
Fixed costs are those that remain the same regardless of the size or volume of work. For instance, if someone wants to buy a laptop for project purposes, the cost remains the same regardless of how much it is used (Jing, 2016). Variable costs, on the other hand, are those that vary directly with the volume of use. For instance, the electricity bill will depend on how much power is consumed in the project.
To understand the importance of the variable versus fixed costs; the project manager ideally structures the costs and impact of changes on them. When the project manager understand actually how big the project must be; she can determine how to complete the entire project work for the least cost. On many projects, there have been choices of performing certain activities Some of the choices reflect low variable cost and high fixed cost alternative like buying an expensive machine which could make pails with the low variable costs versus the manual process of the inexpensive machines bust the high labor costs (William, 2012). All such choices require both variable and fixed costs. it reflects the lowest possible total cost at the size of a project is expected to be. Unfortunately, problems might occur if the volume of project work is substantially smaller or larger than first expected (Robert, 2010). If a volume drops a little bit, total costs might drop very little. But if volume expands a little, costs might go up significantly high. Hence, when considering variable and fixed cost choices, it is very important to understand the project scope.