Cost calculation problem

[jpiedragil]

I have a problem with how MS Project is calculating the annual cost for a
resource.
For example, if I have a resource with a Std. Rate of $1,000 per month,
assigned to a task that starts on Jan 01,2010 and ends on Dic 31, 2010, MS
Project calculates an annual cost of $12,428.57, which is different from the
$12,000 I expected.
The task has a fixed duration, I'm using an unmodified Std. Calendar for
2010 and Project is calculating 2,088h o9f work.
Any help will be appreciated.

Best Regards,

Javier

 

[Andrew Lavinsky]

This is how I've always learned that Cost is calculated in Project. If this
is incorrect, I'd love to hear it:

Cost is really calculated by the minute based on the options set in the Tools

Options > Calendar view.

When you say Bob is $1,000 a month, using the default settings. The system
will calculate:

1 month X 20 Days Per Month X 8 Hours Per Day X 60 Minutes Per Hour = 9600,
or $.10/minute.

When you later allocate the resource to task, it sums up how many minutes
are scheduled to be worked in each month X $.10. The only way to address
that would be to limit their work time to 160 hours / month, which is probably
never the case. And you'd have to assume no task overlap.

....or you could work backwards. If MS Project calculates 2088 hours in a
year, take 12,000/2088 (which equals $5.75), and enter that as their standard
rate.

The other option, which I AM NOT RECOMMENDING, but simply throwing out for
the sake of discussion, is to make Bob a material resource, assign him to
some sort of hammock task for the duration of the project with a units of
"1/mon." There really wouldn't be much point in that though.

The question you get into is a fundamental question in PM, and that is the
question of opportunity cost. The cost of a resource is not necessarily
their salary, but more the opportunity cost of committing them to a specific
project over another project. Some organizations believe that once you account
for the monthly salary, the resource is free, and therefore the only goal
of management should be to ensure that the resource is 100% utilized. Other
organizations prioritize project completion, and are willing to have unallocated
resources to ensure the project is completed in a timely manner. That's
a bit of a religious battle, I am afraid., and won't be addressed in this
forum.

- Andrew Lavinsky
Blog: http://blogs.catapultsystems.com/epm

 

[John]

I have a problem with how MS Project is calculating the annual cost for a
resource.
For example, if I have a resource with a Std. Rate of $1,000 per month,
assigned to a task that starts on Jan 01,2010 and ends on Dic 31, 2010, MS
Project calculates an annual cost of $12,428.57, which is different from the
$12,000 I expected.
The task has a fixed duration, I'm using an unmodified Std. Calendar for
2010 and Project is calculating 2,088h o9f work.
Any help will be appreciated.

Best Regards,

Javier

Javier,
Actually with Project's default settings, with no holidays, you should
get $13050 for 2088 hrs at $1000/mo. The reason is that Project defines
a month as 20 working days (see Tools/Options/Calendar tab). Using the
standard calendar Jan 1, 2010 through Dec 31, 2010 is a total of 261
working days. At 20 days/mo, that effectively gives 13.05 months.
Confusing huh.

The best way to define resource rate is by the hour or perhaps week.
Project simply does not have the capability to work with the varying
days per month in a real calendar so like many businesses, it works with
a "nominal" working days per month. The industry standard is 20. You can
tweak that value but you will never be able to make it come out exact.

Hope this helps.

John
Project MVP

 

[Steve House]

As John and Andrew have said. Keep in mind that Project is a cost
estimating application, and it does a good job of estimating your internal
costs for doing the project's specific work, but it is not an expense
accounting application, a time-and-billing application, a revenue accounting
application, and most emphatically NOT a payroll application. IF you have
a consultant come in to do a 1-hour task in your project who bills $800 per
day in 1-day minimum increments, your out-of-pocket EXPENSE for his visit
will be $800 but your project COST will be $100. Whatever accounts for the
other $700, it's not part of the project budget, which consists only of the
cost
for the directly project related work performed.