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Difference between overhead and indirect costs

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I was just reading the definition of an indirect cost, and it looks like it means the same thing as overhead. Even in NASA's EVM definition, they have "See Indirect Cost" next to the definition of "Overhead." So are these two terms the same in project management, or are they different (and, in this case, how do they differ from each other)?

Personally I think they are the same, because, for example, the team members' salaries are considered to be both overhead and indirect costs on the project.
asked 11 years ago by anonymous

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While I think NASA is the an authoritative reference when it comes to project management, I don't agree with them that indirect costs and overhead.

The problem is that the two terms are often used interchangeably, yet there is a difference, overhead is a subset of indirect costs.

Let me explain.

Overhead is an indirect cost that is related to the project. An example of overhead is the salary of an employee who is working on the project. The salary of the employee would have been incurred anyway even if the project did not exist (that's why it's an indirect cost), but since the employee is working on that particular project, it is considered an overhead.

Indirect costs include overhead and other operational expenses that have nothing to do with the project. Examples of these operational expenses are: Office rent (if the office is not used solely to develop the project), electricity, legal fees (non project specific), and other administrative costs.

So while indirect costs are associated with the whole organization, cost overhead is associated only with a specific project (while still not being a direct cost, see: http://www.projectmanagementquestions.com/1509/what-are-two-examples-of-a-direct-cost-and-indirect-cost ).

Again, overhead is an indirect cost, but not vice versa.
answered 11 years ago by MaplePM (46,940 points)

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