Jeff DahlProject Leader| Edward JonesMaryland Heights, Mo, United States
I am wondering what other project managers think on this. To date I have worked for several companies that do not track internal costs for working on a project and only focus on external costs that involve money actually leaving the firm.
I have tried to complete cost base estimates so the senior leadership has a better view of the opportunity costs for doing one project vs another but keep running into barriers from various deaprtments.
So I am wondering how many others do not track these costs.
I have seen many companies that do not track internal costs. Probably more than half of the companies I worked for did not.
Tracking internal costs gets very political and difficult, so do not be surprised if there is some resistance to doing so. Most difficult is the issue of staff salary and rates. If you use a blended or role-based rate to preserve salary confidentiality, then the accountants argue that your numbers are wrong. If you gather correct information, based on actual salary, then Human Resources professionals insist that the numbers cannot be divulged, because they reveal individual salary rates.
Another difficult issue is whether and how to add in "overhead" costs for each employee. These include benefits, office space, equipment, supplies, training, bonus, and other costs that each employee normally incurs.
Good luck in figuring out your costs. If you want any help in how to navigate these obstacles, let me know. I am happy to help. Every company deals with them differently, from what I have seen.
--Alex Saving Changes...
Larysa SzalapajIT consultant| Self-employedNr Ramsbottom, United Kingdom
Hello Jeff,
Your question caught my attention as I am just doing some work on 'value for money' - and am trying to understand whether IT leaders are interested in, concerned with, think about the 'value for money' aspects of their projects.
In reply, I would say that if your project requires the participation of internal staff, for example during the requirements capture, acceptance testing phases, if you are using internal project managers, internal IT staff - managers, developers, testers and so on, then these costs ought to be captured and analysed. Most particularly I would do this if your project is going to change the nature of the staffing either in the user departments or within the IT team, if the balance of skills and knowledge changes, if the project by taking place changes the company within which it is conceived - then I think it important to register the internal costs.
I have found it useful to present the cost benefit analysis of a business case in two different ways: one showing only hard costs - money leaving the company and the second showing the soft costs too. I would not expect it to be easy to get this kind of information; all the background information regarding personnel and salaries is likely to be delivered by the finance department, secondly section heads will need a clear idea of how their world will differ once the project benefits have been realised. The line between calculating hypothetical opportunity costs/benefits and justifying the headcount is quite fine and walking it is not an enjoyable experience.
Now, back to my question on VFM. Do you think that this is an important subject matter today in our recessionary times?
Kind regards
Larysa Saving Changes...
Christoph FelixServices Principal Project Manager| MicrosoftTuebingen, Germany
Hi Jeff,
I also had the experience that most customers especially government do not track internal resources/cost.
In one project although I had a wonderful environment. We had to initially estimate the internal PDs (person days) and let these approve as part of the overall budget. Tracking was easy as all internal employees must report their working time against projects in the corporate Microsoft Project Server. Our project was also loaded on Project Server so I was able to extract the current state at least on a monthly base.
As with all reporting systems you can argue whether all internal employees did report their time accurately. Nevertheless it was much closer to reality the guessing:-)
> I am wondering what other project managers think on this. To date I
> have worked for several companies that do not track internal costs for
> working on a project and only focus on external costs that involve
> money actually leaving the firm.
It is very easy to compute the internal cost for a project. All the finance guys will know it, they dont share it!!
In my experience, the CFO and finance people often do not know the cost of a project. It really depends on the type of company, whether they will have project cost data.
For a consulting company, where every hour is billable, the finance reports probably do include the project costs. These companies often use a "job costing" module in their accounting system to break out each project's cost.
Construction companies and other companies doing massive projects often create budget centers that are project-based. They might be able to break out a project's cost. Even in these situations, though, they might have a single budget center for a housing development, but be unable to break out the project cost for a single home. It depends on how they decide to do their accounting.
For other types of companies, where people's hours are not billed and where accounting codes are driven by departments, the finance department probably does not know the project cost. Each project is probably buried in with the other purchases and expenses for a group of departments. I worked at an insurance company where we began to break out these project costs, and it was a big change for the accounting department and staff. Saving Changes...
I am rather surprised that some organisations do not think tracking internal costs are relevant to the total cost of projects. Internal and external costs and including software, hardware requirements etc make up the budget that it is agreed for delivering solutions. Resource effort should be costed on the daily rate whether internal or external staff is utilised. The Finance department needs to be involved at the start up stage of the project and for the Project Manager needs to work closely with them in gaining process understanding on how the Finance chargeback process works, how to raise Purchasing Orders, authorisation and billing, all these steps do form part of the project; when the project is finally delivered it can be realistically measured whether it was delivered within budget [total budget]. If barriers from departments are hindering progress, it is time to review the Governance and framework in place, there should be templates readily available for producing the mandatory products [documents] including Estimating time, effort and cost.
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