In search of project costs
16 Nov

In search of the project costs

Project management software is a dime a dozen. Software for controlling is also widespread. A "fully integrated solution for controlling and Project controlling within an ERP system" is rather rare already. But there is one piece of information that should really be of interest: the project costs.

Actually quite simple

Project or service providers, as well as service companies - all of them already have service in their name, as what the value creation of such a company revolves around.
the Services are mostly equipped with a Performance associated with services provided by one or more persons. These services are then what is billed to the customer. So far, so banal ? or so one would think.

What does it cost? much effort and costs are compared to the billable services.

In order to be able to invoice one's services, it is first necessary to record them. Once recorded, the service can be proven to the customer by means of invoicing. Because not everything we do as a service provider is what the client wants to pay for. Activities that were not carried out exclusively for him, expenses that were caused by the fault of the service provider or services that were not contractually agreed: The EffortThe costs are incurred by the service provider, but he cannot charge anything. This is everyday life for companies that service and service - and yet many find it difficult to quantify exactly how much effort and project costs stand in relation to the billable services.

The one small difference

Why is that? Again, there is a fairly simple answer to this. It is not recorded separately. It is true that there are as many different performance recording systems as there are different projects. However, the vast majority have a common origin: they come from the corner of organisational tools. They are masterful at organising (at least some) projects, allocating them to resources, measuring project progress and sometimes even managing project budgets. Strangely enough, most of them lack a component at the very beginning of the recording process: the distinction between billable and non-billable Performance.

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The field for the project costs

At first glance, one might think that this can't be a problem. Instead of just one field in a data entry screen for the time worked, there has to be a second one: For the time worked that cannot be charged to the customer. However, the value alone is not enough. The structure that receives this value must also be set up for it.
The service provider has a fixed hourly rate towards the client, which he charges per unit. This hourly rate is based on a contractually agreed condition. This is offset by the costs of the employee who provided the service. And behind these rendered services there must be a cost rate to determine the costs: For the Invoiceable and non-billable Benefits. These costs can differ per project, employee, activity, time, etc.. And the same resource can cost differently in different projects.
And while we are on the subject of resources - it is not only people who generate costs who use their time. Equipment, machine hours, consumables, travel costs and so on also count here.

Excursion into cost accounting

Cost units (projects) are the answer to the question of what the costs were incurred for ? while the cost centre answers the question of where (in which department) the costs were incurred.

This is precisely where many project management-tools the playing field. Reference is made to cost accounting. Here cost centers to catch the costs of the projects and make them evaluable. However, a cost centre was not and is not intended for this purpose. The original idea of the cost centre is to represent a part of the company (department, branch, etc.) in an object. A project, on the other hand, is a cost unit. In other words, the body that bears the costs of a product or project. Cost units tell us what costs are incurred. Cost centres show where these costs were incurred.

Once everything double

As another backdoor, a kind of double entry is often used. One has per actual service, two services - The billable and the non-billable performance. Apart from the fact that this does not make the recording of services very convenient, such an approach naturally invites forgetting and errors. In addition, it makes another cost dimension difficult to evaluate: the type of costs associated with this one specific service.

There is also the trappings

In order to find all project costs that a project bears, all costs (not related to the implementation of the project) must also be found there. These can be directly related costs from the run-up to the project. In particular, sales expenses to win the project in the first place. You may also want to distribute overhead costs from the company's activities to the projects.

At this point at the latest, a deep integration in the business management (software) solution landscape.
Simple interfaces are quickly overwhelmed.

More than thought

On second and third glance, one realises where most project management tools are lacking: the 'marriage' with cost accounting.
However, if such an integration exists in the business management of a project-driven company, real gold treasures can be unearthed. The effort required to create cost transparency is considerably reduced. And this kind of transparency is the indispensable basis for corporate success.

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