Tracking Fixed Costs

[ProjectUser]

Happy New Year's to All,

We have MS Project Termainl Server 2003 running and are trying to figure out
how to *best* capture fixed costs for IT Projects, I'm afraid Microsoft made
this product so robust that there are too many options and too few solutions.
Not only would we like to capture these costs, we'd like to report on them
(in a somewhat easy fashion) as well.

In sepcifics, we'd like to track hardware and software costs project by
project, I'll outline our proposed solutions and why we've decided not to use
them:

- Create tasks with fixed costs outlining the hardware or software cost
description
Decided not to pursue this as we would *have* to have resources book time
against these tasks and it's hard to create a task called "IBM Pro Server"
and then have time booked against it. There is also no way to report on total
hardware or total software costs in total as this infomration is strewn
around the project plan at the task level.

-Create global material resources and assign these resources at the project
level
This appears to be our best solution so far, but will crowd our global
resource pool

-Utilize the custom cost fields and create hardware and software cost columns.
We will not have accurate baseline information as these numbers don't make
it into the baseline calculations

Is our analysis flawed? There *has* to be an easy way to track these costs,
I refuse to beleive that it's this complicated.... please help!

 

[Steve House [MVP]]

Your first option may well be the best and your objections to it have some
flaws, IMHO. You may have something called "IBM Pro Server" but for it to
be a project you must be doing something TO that server - installing it,
writing programs for it, upgrading it, something - otherwise it's just a
piece of capital equipment you own. So the first thing to decide is are you
talking about the costs of doing things *to* that server, the ongoing
operating costs *of* that server, or the costs of using it as equipment in
doing other projects.

A "project" always implies change over a finite period of time, with
something or some situation existing at the end of the project that did not
exist at the beginning. Simply owning or operating a piece of equipment is
NOT a project, by definition, although of course operating it could be a
task in a project, like driving a bulldozer on a construction site would be
a task in the construction project, and any PM software will be a poor
choice for managing its ongoing day-to-day operation. The project itself
actually consists of the set of all the individual pieces of work performed
by resources in achieving whatever change you're trying to accomplish. The
project costs are either the direct, marginal cost to the firm of doing the
project or the indirect opportunity cost of having the firm's assets doing
*this* project which means they're tied up and not available to do *that*
project. The cost of the project, then, is the cost of the work performed
by the resources plus the cost of materials purchased and incorporated into
the final deliverables or consumed in the course of their production. "Fixed
costs" are those incremental costs that are associated with tasks or phases
in the project that are other than resource or material costs. For our
server upgrade, the salary of our programmers would be a work resource cost,
new drives purchased to add capacity to the server would be a material
resource cost (associated with the task of installing them), and extra
office space or workstations rented specifically for the programmers to work
at for the duration of the project would be part of the fixed costs. Note -
the cost of assets already owned or the cost of assets PURCHASED during the
course of the project but not actually permanently incorporated as a
dedicated component in the final product would not really be part of the
project costs at all - they're a capital expenditure that is part of your
business's facility overhead costs but are completely separate and distinct
from the costs to the firm of doing the project itself - although you might
well choose to apportion the depreciation on them for the term of the
project as a fixed cost in the project, representing that portion of their
total value that is used up doing this project's work.

Hope this gives you some ideas to work with.


--
Steve House [MVP]
MS Project Trainer & Consultant
Visit http://www.mvps.org/project/faqs.htm for the FAQs

 

[ProjectUser]

Thanks for your response Steve!

To explain further, 'IBM...' was a vague description. How about a software
implementation project? One which calls for $150,000 in licenses, $500,000 in
severs, and of course consulting costs, local resource costs, etc. (This is
just an example). I understand that servers are just capital, but without the
project, purchasing them is unnecessary. And lets extend the example further,
maybe we are evaulating a few different options, in the end we'd like to
budget out the total costs of such projects, so we can calculate ROI, value,
and manage ultimately manage and explain any fluctuations in costs.

My main hesitation with using tasks for this, is that I can't easily report
on my capital costs. And, I'd have to book time against such tasks if I want
to roll up the fixed costs. Does this make sense? Is there an easier way to
treat such costs?

Thanks!

 

[ProjectUser]

Sorry, I didn't notice the second paragrah you wrote, and find that a bit
more helpful. I agree with all that you're saying, and it seems like material
resources are probably the route to take. Yes a machine is capital, and will
be depreciated, but I still need to budget the cash necessary for such a
purchase and was hoping to use MS Project for resource planning and budgeting.

 

[Steve House [MVP]]

In the example you give, IMO the licenses and the servers would be materials
since they are incorporated in the project final deliverable. If I buy a
$5000 laptop to use as a workstation in our new network, the workstation is
part of the cost of the network and that makes it a material cost and all
$5000 is part of the project budget. It remains a part of the network after
the project is complete. OTOH, if I buy that laptop for an engineer to
carry around to various sites to test the network communications as we do
the installation it, its use in the project terminates when the project is
finished and we can then use it for other things in our organization or even
sell it if we wish. Its purchase price is not part of the project cost but
the portion of its value that is used up over the course of the project
would be. If we buy it for $5000 and resell it for $3000 6 months later
after our network is up and running, the cost to the project is $2000. We
can actually track that sort of cost by treating it as a work resource,
weird as that sounds. If our laptop will depreciate $2000 in its first year
of ownership, its "salary" is $2000/year or about $1/hr. If we use it for
10 hours setting up the router in location X, the cost to our project for
the laptop in that task is $10. That doesn't represent the total cost to
the firm but it does represent the portion of that cost that is part of our
project's burden. The rest of it has to be accounted for elsewhere.

In any case I would never track it as a task against which you book time.
Tasks are always, without exception IMHO, observable physical activity of
some sort. Rather it is either a material resource that is consumed by
tasks, a work resource that does work in tasks, or perhaps part of the
project overhead itself and carried as portion of the fixed costs for the
tasks or project phases where it is used.

--
Steve House [MVP]
MS Project Trainer & Consultant
Visit http://www.mvps.org/project/faqs.htm for the FAQs