Project Costs

Any project, big or small, or regardless of the industry, needs to be performed and delivered under certain constraints. Cost is one of those constraints that project management needs to effectively control. Cost can be the driving force or an impeding factor in determining the future of a project. Therefore, one can easily spot the need for applying thorough cost estimating processes and techniques to ensure that a project can be viable.

Estimating a project’s costs is important for several reasons:

  • It enables project managers and stakeholders to weigh anticipated benefits against anticipated costs to see whether the project makes sense.

  • It allows project managers and stakeholders to see whether the necessary funds are available to support the project.

  • It serves as a guideline to help ensure that the project has enough funds to be completed.

Project’s cost includes both direct and indirect costs.

Direct costs on a project include the following:

  • Salaries for team members

  • Specific materials, supplies, and equipment

  • Travel to perform work

  • Subcontracts that provide support exclusively to your project

Indirect costs fall into the following two categories:

  • Overhead costs: Costs for products and services for your project that are difficult to subdivide and allocate directly. Examples include employee benefits, office space rent, general supplies, and the costs of furniture, fixtures, and equipment.

  • General and administrative costs: Expenditures that keep your organization operational.

In Sciforma, cost estimates can be made by using one of the following features:

  • Macro Planning – Costs are estimated through the first draft of the schedule by computing assignments and transaction costs before launching the project.

  • Forecast – Labor, Cost Item, and Transaction costs are estimated directly in the Finance workspace. This option relies on the Cost Centers.

The best cost-estimating method for your project depends on the scope of your project, the level of accuracy needed, and the practices of your organization.

Note

For further information about Costs Forecast, please refer to the Forecast topic.

During the Macro Planning phase of a project or a business case, the Project Manager will have the opportunity to plan Labor assignments (soft and hard), Cost Items assignments, and Cost Transactions.

Resources assignments costs (Soft Assignments)

Organization and Job Classification are two Resource attributes. If a Cost Rate has been defined for each Organization and/or Job Classification by the Administrator in the System Data workspace, then these cost rates will be taken into account when a soft assignment is performed on a Task as follows:

Assignment Cost = Assignment Total Effort x Assignment Cost Rate

Example: Imagine an Electricity task of 5 days for which the project manager assigns an Electrician (Job Classification) who works 8h/d and has a cost rate of $100/h. The Total Effort for this assignment will be 40 hours. Therefore the cost for this assignment will be $4,000.

Settings

Project Managers will have to set the Soft Assignment Cost Source (Organization or Job Classification) in the Soft Assignment Cost Source field available in the Administration workspace, Setup tab, Finance Advanced Attributes (GearBlue.png).

Note

For further information regarding Resources assignments costs, please refer to the Resources Scheduling topic.

Resources assignments costs (Hard Assignments)

When defining named resources, Administrators will have the opportunity to set a Cost Rate (in the Corporate Data workspace, Resources tab) for each resource. Therefore, when project managers assign a specific named resource to a task, Sciforma will be able to compute a cost using the following equation:

Assignment Cost = Assignment Total Effort x Assignment Cost Rate

Example: Imagine an Electricity task of 5 days for which the project manager assigns John Doe who works 8h/d and has a cost rate of $100/h. The Total Effort for this assignment will be 40 hours. Therefore the cost for this assignment will be $4,000.

Note

For further information regarding Resources assignments costs, please refer to the Resources Scheduling topic.

Cost Items assignments costs

When defining Cost Items, Administrators will have the opportunity to set a Cost Rate and/or a Fixed Cost for each cost item. Therefore, when project managers assign a specific named cost item to a task, Sciforma will be able to compute a cost using the following equation:

Assignment Cost = (Assignment Total Unit x Assignment Cost Rate) + Fixed Cost

Example: Imagine a Unit tests task of 5 days for which the project manager assigns a specific server which has a unit rate of 8h/d, a cost rate of $100/h and a fixed cost of $200. The cost for this assignment will be (40 x 100) + 200 = $4,200

Note

For further information regarding Cost Items Assignments costs, please refer to the Cost Items topic.

Cost Transactions

Transactions are used to estimate and schedule the funds required for a project and the revenues it could possibly generate. This is different from planning the usage of resources and cost items, as transactions represent the real cost of those resources.

For example, transactions can be used for Indirect costs such as Overhead costs and General and administrative costs.

Note

For further information, please refer to the Cost Transactions topic.

Budget & Costs related to Contracts

In the context of Business Management, it is apparent that in the same company, a large number of projects are interrelated. Interrelated projects can share a common objective, but can also share some common financial aspects such as Budget.

In Sciforma, the Project Budget can also be managed through Contracts (for Hierarchy Connections only).

A Contract represents the terms agreed upon by the Manager of the Source object and the person who is in charge of the connected object (Target objects) in regard to timeframe, budget, and deliverables.

Thus, Users will have the opportunity to delegate parts of the budget to sub-projects and work packages from a Source object. Here again, only Cost Centers that have been defined at the Source object level will be available to define a Delegated Budget.

If the Project Budget is related to Contracts, it will be computed as follow:

Total Budget = Direct Budget + Indirect Budget - Delegated Budget

where:

  • Direct Budget – Sum of time-distributed Budget associated to Cost Centers

  • Indirect Budget – Sum of time-distributed Budget coming from Contracts with other Programs/Products (each item is identified with the Program/Product providing the Budget)

  • Delegated Budget – Sum of time-distributed Budget pushed to other Projects via Contracts (each item is identified with a Cost Center or a Program/Product depending on which Budget is used to fund the other Project)

The Project Total Cost will be adjusted and computed as follow:

Adjusted Total Cost = Total Cost + Inbound Cost - Outbound Cost

where:

  • Total Cost – Sum of Time Distributed Labor, Cost Item and Transaction Cost

  • Inbound Cost – Sum of Time Distributed Costs coming from Projects that reallocated Costs (each item is identified with the Project pushing the Cost)

  • Outbound Cost – Sum of Time Distributed Costs pushed to other Projects (each item is identified with a Program/Product and a Time Distributed % applied to any Cost not associated to a Cost Center)

Use Case

Let’s take the following example where a Product, a Program, and a Project are connected:

We want to track the budget and costs at the Product level.

Budget_Contract.png

Product Total Budget = Direct Budget + Indirect Budget – Delegated Budget = 14,500 + 1,000 – 500 = $15,000

Cost_Contract.png

Product Adjusted Total Cost = Total Cost + Inbound Cost – Outbound Cost = 4,800 + 600 – 960 = $4,440

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