Project Management

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Overheads cost allocation for project budget development.

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Davit Iskandaryan Managing Partner| PMA LLC Yerevan, Armenia
Hi everyone

I am working in a matrix organization, where different projects are being initiated and implemented simultaneously. Now I am developing a project management plan for a new project and want to finalize the project budget. The functional divisions (finance, legal, HR, procurement, etc.) serve all the projects within the portfolio of the company. So, my question is how to clarify the allocation of overheads costs to the budget? Are there any benchmarks, percentages?
Thank you!
Davit
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Kiron Bondale Retired | Mentor| Retired Welland, Ontario, Canada
Davit -

I'd recommend checking what your organization's standards are for project budgeting as such overhead allocations might be covered under the operating expense budgets for each line of business vs. being directly allocated to individual projects. I've only seen such direct allocations of overhead costs happening in more project-oriented companies.

It's possible that if you are directly services from some of those support areas for your project you might have cost recovery occurring but that would be tied directly to those specific services.

Kiron
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1 reply by Davit Iskandaryan
Dec 21, 2018 6:49 AM
Davit Iskandaryan
...
Hi Kiron

Thank you for the information and support.

Davit
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Ashok Kumar Herndon, Va, United States
Usually, all companies maintain some policy documentation regarding allocation & apportionment of overheads to have standard practices across various units/divisions/departments/projects. The Cost Accounting Standards (CAS) is also critical legal requirement for certain type of government contracts.

First, please try to verify the existence of policy in your company …to avoid future conflict/duplication. Once you are 100% sure that such policy was never formally established, then, review of practices regarding recent projects (and efforts towards documenting them) will be a good start for new policies.

To setup a new policy (if there is no statutory requirement), the overhead cost can be allocated and subsequently apportioned to individual projects …based on ratio project direct cost to total direct cost. It’s great idea to engage ‘right folks’ within your company to discuss this matter.
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1 reply by Davit Iskandaryan
Jan 08, 2019 8:35 AM
Davit Iskandaryan
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Dear Ashok,
Thank you for comments. I will follow the advice.

Thanks, Davit
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Bharatkumar Unercat FOUNDER AND CEO| A2Z STRATEGY SAATHI Mumbai, India
Fully agree with Ashok on this matter.
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Davit Iskandaryan Managing Partner| PMA LLC Yerevan, Armenia
Nov 10, 2018 10:04 AM
Replying to Kiron Bondale
...
Davit -

I'd recommend checking what your organization's standards are for project budgeting as such overhead allocations might be covered under the operating expense budgets for each line of business vs. being directly allocated to individual projects. I've only seen such direct allocations of overhead costs happening in more project-oriented companies.

It's possible that if you are directly services from some of those support areas for your project you might have cost recovery occurring but that would be tied directly to those specific services.

Kiron
Hi Kiron

Thank you for the information and support.

Davit
avatar
Davit Iskandaryan Managing Partner| PMA LLC Yerevan, Armenia
Nov 10, 2018 1:15 PM
Replying to Ashok Kumar
...
Usually, all companies maintain some policy documentation regarding allocation & apportionment of overheads to have standard practices across various units/divisions/departments/projects. The Cost Accounting Standards (CAS) is also critical legal requirement for certain type of government contracts.

First, please try to verify the existence of policy in your company …to avoid future conflict/duplication. Once you are 100% sure that such policy was never formally established, then, review of practices regarding recent projects (and efforts towards documenting them) will be a good start for new policies.

To setup a new policy (if there is no statutory requirement), the overhead cost can be allocated and subsequently apportioned to individual projects …based on ratio project direct cost to total direct cost. It’s great idea to engage ‘right folks’ within your company to discuss this matter.
Dear Ashok,
Thank you for comments. I will follow the advice.

Thanks, Davit

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