Project Management

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Topics: Cost Management, Resource Management, Talent Management
Cost of resources on a project
I have been given the task of creating some Project Management KPI's to report to senior management on how the project team is producing and the profit margin of projects and resources. They want to allocate higher paid employees to tasks that are more difficult in nature (solution architecture, etc) and lower paid consultants to tasks that are easier in difficulty (configuration of system) and get to a point where they can measure profit margin based on employee cost rate and allocate based on cost rate.

They want me to put together some metrics that show these things (profit margin based on employee cost rate and allocate based on cost rate). They mentioned using a higher burn rate for higher cost employees if this even makes sense?
i.e.: Actual vs budget for Profit and loss by person, fully loaded compensation and overhead burden

I always used a PM application that did this calculation in the past, but this company uses Smart Sheet and does not have much built out in the way of reports. I don't know where to start, any help is appreciated.
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My first answer is: forget about it, it has no sense. And I can sustain it. But, because I was in the same situation, the academic answer to it you have to use Activity Cost Management.
How many companies actually do like this? This is the 1st time I hear this - "measure profit margin based on employee cost rate and allocate based on cost rate." At least in the companies I have worked, they directly assign difficult tasks without checking these things. It is more within the scope of the PM to do this. Cost is based on the role of the resource in the project. A senior dev can be acting as a TA for a project. So his cost would be that of a TA in this project.
Don't measure performance at the individual level - do it at the team level. Otherwise, it becomes a divisive situation.

Kiron
Kirsten,

We have managed such projects where we had to plan, monitor, report resource costs, amongst others and report project margin. We also planned and monitored the risk register and how it would affect the project margin. So things like that happen :).

The best I can advise you, as I see that this is something new for you, is to sit down with somebody from Finance department, if you have project financial controller - perfect, and start recording all the costs, prepare plan and update it regularly. You need Finance in the financial planning/controlling of the project, as they should have also the people rates/costs, as per their job profile (not according to their project role), it also depends if the project is with external customer or internal, cross-department, cross-country, etc, as the calculation of the rates will differ in these cases.

Regards,
Milena
The most efficient organisation for software projects is usually to have small multi-skilled teams aligned to products/value streams/deliverables rather than aligning people to activities. Perhaps you could propose that as an experiment. I also agree with the other comments here.
This is the typical task for project resource skill management.
Creating project model in Spider Project software we assign to tasks not named resources but resource skills. We also create the lists of resources that have each skill. Resources have hour rates and productivity on different types of assignments. When we run project resource leveling the software automatically selects who will do what basing on user defined assignment priorities, resource availability and resulting activity costs. More expensive resource can have very high productivity and as the result the task will be done faster and cheaper than in case of assignment of low cost resource that we will do the task too long time.
Spider Project users can create different assignment criteria but selection of resources that will do the job cheaper is default.
Hi Kirsten, interesting requirement you're facing. Your management wants to make a quantitative assessment of qualitative stuff where the achievement was collaborative and barely classifiable.
however, if they say so,
1. Somehow, determine the share of the task in the overall project (management needs to accept the weightages)
2. What were the acceptable performance parameters for the employees performing for these tasks?
2. Determine How well that employee himself has done that task?
Club them and may be you can get what you want.
Good luck with it... and if possible do share if you do it. All the best.
Sounds like the underlying issue is the effectiveness of staff - trying to show that higher paid staff are more effective than lower paid. That's why more effective people are paid at a higher rate than lower paid. Ideally, the effectiveness of a higher paid balances the less effectiveness of the lower paid.

As an example: Joe, a higher paid staffer by 20%, gets the task done 20% faster than Sam, the lower paid staffer - effectiveness is identical.

But that's not reality. Project tasks are are undertaken by teams (2 or more people) each with their own knowledge and experience. Effectiveness is achieved by the team, not each individual. Project KPIs should be tracked by task - percentage of tasks completed on time and/or on budget (don't forget quality of deliverable). From there you can track which staff works on which task and determined who tends to be on the successful outcomes.

Back to our example: Joe was assigned to tasks that achieved time and/or cost constraints 75% of the time whereas Sam only 50%. Thus on the surface Joe tends to be more effective. However there are so many other factors to consider this result may be way off-line.

Be careful. Senior management will want to use individual KPIs in salary negotiations rather than effective project delivery.
what if you pay salary hike to individual who is getting low salary and he starts perform more effective than highly paid user. In project, as a general rule, Work or task is achieved by a complete team and perhaps a individual is known as best performance in team irrespective of higher paid or low paid.

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