Understanding the Difference Between Cost and Price

In this podcast, Ricardo talks about the difference between cost and price. Many people are confused and Ricardo explains what's behind each one, differentiating them.

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Episode transcript

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Hello everybody welcome to the, for five minutes, BM Podcast I like Today to talk about Cost and Price it. A lot of people do a mistake thinking that Cost and Price are pretty much the same thing. It's very common for us. When we see people asking what's the cost of this, what's the price of this people switching from cost and price in a very easy way. So I like to talk about this in the prototype environment. So first, what is a Cost Cost on the scope of your project.

It's based on the resources that you use for your project. So it's based upon the people and machines equipment's that you use and apply for your project. Price it's a little bit different price is related to value it's related. Okay. You spent some money to produce some services, some products that will be the output of your project does will generate a Valley based on the perceived value for the market.

This will address a higher price or a lower price. I'm talking in the, for profit, the environment. So a lot of people think okay, to reach the price and to understand the price of my project. I need to take the costs, ad all the costs, add my profit and then have the price. This is a very, very old school. The new school that is really, really important. Each one, understand, okay, what does the value of what I am producing? How to market will perceive this Deanne.

You compare this with the Cost you are planning to spend to deliver that value of what you expect. You would expect that the value is bigger than the Cost, but it's not in our cases. I heard and saw many, many projects what people think only about Cost and they don't think about the Valley and the Price and when the product is ready or the project is over, people could not translate this into the Valley and the benefit that they expect.

And a lot of project managers think that this is not their problem. Okay. My problem is with Cost. And I want to challenge you to reveal this concept because it's very, very important that during the business case phase, when we are trying to understand the Valley of what you do, you start thinking about value and say, okay, what does the Valley I'm delivering? What's the reason this is basically related to the outputs. It's related to how people will perceive our project. And then you compare with your projects.

You can not just simply OK, how much it's the cost of the cement of the bricks. And this will drive me to the cost of their house. Yes, but what will drive to the price of their house? It's not necessarily only the brick you need to understand, okay, in this region, do the people want more of this kind of house? Do they give Valley? How's the real estate on that area? What are the trend? And this will drive you to the price. And of course you need to have a valid that scale to both with your Cost or the why's.

You are killing your business by doing poor projects that you need to understand that this is also a project manager responsibility. He's not just taking care in looking at for the cost of the break. The house is far, much more than bricks, cement and workers. So it's a much more complex environment that you need to screen to understand what is the perceived Valley of that So for things that do not deliver Valli, a dollar it's a lot of money.

Think about that. Always have a wonderful week, can see you next week with another five minutes BM Podcast.

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