Contract Cost vs Actual Cost

Contract Cost vs Actual Cost

by | 15 Dec, 2021 | Blog

Project-driven companies need to manage several budgets for the same project. Particularly useful to control contract cost (income) and actual cost (expenses) of project.

The actual cost comprises of equipment, materials, resources and other direct and indirect expenses.

Cost Centers
Spider Project unique feature – Cost Centers enable to control several budgets of the same project. Project cost components in Spider Project could be grouped in cost centers to control both: contract and actual costs.

This approach has a number of advantages:

  • To be competitive in tenders, as it is extremely useful to calculate planned profit, taking risks and uncertainties into account;
  • During project execution, project managers can control how their decisions impact profit;
  • Project sponsors can understand the “cost of delay”.

See how Contract Cost and Cost Centers work in Spider Project:

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Julia Lyaschenko

PMO | Program Planning & Delivery Specialist | PRINCE2© Practitioner | SAFe© Agilist (SA)

Indirect Project Cost

Indirect Project Cost

by | 25 Nov, 2021 | Blog

Direct and Indirect Project Cost

Project cost consists of direct cost components such as labour, materials, machinery and equipment costs. Also, an overall cost may include indirect cost, frequently referred to as overhead expenses: rent and utilities, some general and administrative expenses, or even some portion of accounting and human resource department costs.

Organisations have business rules of how indirect cost has to be applied. Usually, it is a percentage of overall direct cost or specific cost components.

Spider Project allows applying formulas to cost components for easy calculation of indirect project cost, based on unique organisational business rules.

Such an approach allows understanding of the “cost of delay” when the indirect cost increases overall project cost if the project takes longer than expected.  

See how inderect project cost & schedule integration work in Spider Project:

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Julia Lyaschenko

PMO | Program Planning & Delivery Specialist | PRINCE2© Practitioner | SAFe© Agilist (SA)

Cost and Schedule Integration

Cost and Schedule Integration

by | 28 Oct, 2021 | Blog

An integrated delivery model must take into account all technical, resource and financial constraints.

Full integration between project time and cost must include all expenses assigned to project activities, resources and time-driven tasks.

Cost Components

As each project is unique, it may require different cost components like: labour, materials, machinery, licensing, indirect cost, penalties, cost of delay, contract costs and many others.

  • It is not sufficient enough to just have a single cost category. It is essential to manage and analyse project costs from different perspectives. So, cost components must be defined and set up based on project nature.
  • Additionally, to expense costs, a project can have contract costs, and in many cases, it is necessary to create and manage several budgets for the same project.

Therefore, it is necessary to define these elements as individual cost components that can be used for project budgeting, project performance and risk analysis.

Cost Assignments

Different projects may require managing cost elements in different ways:

  • Activity costs can be defined as fixed, cost per volume unit, and cost per work hour;
  • Renewable resource cost can be defined as cost per hour;
  • Consumable resource cost can be defined as cost per unit;
  • Resource assignment cost can also be fixed or defined as cost per work volume unit and hour;
  • Indirect costs usually depend on project duration, and they are assigned on the Level of Effort or Hammock activities. It is usual practice to calculate them as the percentage of some cost components.

The cost of time must also become a part of the project model. Usually, project cost rises when the finish is delayed or drops with the schedule acceleration.

Cost and Schedule Integration

Proper cost and schedule integration require:

  • Project delivery plan to be built based on volumes of work, resource productivities, resource availability, material supply and funding constraints.
  • Project cost loaded based on the relevant cost components.

Only then a project delivery model has a full and reliable cost and schedule integration.

The application of this approach can significantly improve project management culture and increase the number of successful project implementations.

Spider Project allows full integration of time and cost. The project team can set up all necessary cost elements in all possible ways.

See how cost & schedule integration works in Spider Project:

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Julia Lyaschenko

PMO | Program Planning & Delivery Specialist | PRINCE2© Practitioner | SAFe© Agilist (SA)

Material Gantt View

Material Gantt View

by | 21 Oct, 2021 | Blog

Materials in Project Management

Project resources are divided into renewable (labour, machines) and consumable (materials).

Consumable materials in project management may include fuel, sand, bricks, paint, traffic signs, etc. consumable renewable resources that are necessary for completing project activities for successful delivery.

Materials Integration into Project Plan

It is important that material management is integrated into the project plan.

In Spider Project it is possible to define that renewable resource consumes materials whenever it works (a car consumes gas in a certain amount per mile or per hour) and cost of materials is included in resource cost.

Resources can consume materials in the process of their work (defined as quantities per hour).

Materials can be also assigned to activities or resource assignments directly.
In these cases, material consumption may be set as fixed, per hour, or per work volume unit.

Material consumption per volume unit for typical activities are usually defined as the corporate norms.

It is critical to understand when materials are needed for the activities on the critical path as a delay in the material supply may result in the whole project delay.

Spider Project assists in achieving effective resource planning including materials demand and supply.

Materials assignments could be shown in Activity Gannt Chart View just with one click!

Material Gantt View
In addition to Activity Gantt View and Resource Gantt View, Material Gantt View is a special feature of Spider Project. This feature enables full visibility of materials utilisation on the timeline and is fully driven by the integrated project plan.

See how Materials management work in Spider Project:

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Julia Lyaschenko

PMO | Program Planning & Delivery Specialist | PRINCE2© Practitioner | SAFe© Agilist (SA)

Volume of work and Productivity

Volume of work and Productivity

by | 5 Oct, 2021 | Blog

There are two main approaches used to estimate project work: duration-based and volume-based.

Often schedules are developed with a duration-based approach, mostly due to planning tools limitations.

An alternative, much more powerful approach is based on the volume of work and productivity of assigned resources. Volume-based planning is an intuitive and easy method.

Activity volume is used as initial activity information instead of duration.

Activity volume can be measured in meters, tons, story points, planned work hours, percentages, pages or any other units.

Resource productivity is defined in volume units per hour.

Activity durations are calculated as the volume of work divided by assigned resource productivities.

Example 1
A worker needs to dig a 100m trench. If his productivity is 5m/h, the duration of this activity would be 20 hours.

Example 2

A bulldozer is needed to push 200 m3 of sand. We have two resources that could be used for this work: a powerful bulldozer 1 with a productivity of 20 m3/h and an older model bulldozer 2 with a productivity of 10 m3/h.

The duration of the activity will be 10h or 20h, depending on which bulldozer is assigned to this activity.

The assignment is likely to depend on:

  • other works need to be completed by bulldozers;
  • whether this activity is on a resource critical path or not. If not, we may prefer a less productive/cheaper bulldozer.

Volume-based planning has many advantages:

Norms
Projects are often planned (especially in construction and manufacturing) based on the federal, local, industrial or corporate norms and standards. These standards usually refer to resource productivity on the certain activity types per unit of activity volume (costs and materials as well). These norms could be used as a base for planning.

Stability
Unlike activity duration activity volume (scope) is a more stable and reliable activity characteristic as it does not depend on assigned resources.

Progress
Usually, it is much easier to measure the volume of work to understand activity progress.

Resource Supply
When resource supply is changed, activity durations could be automatically adjusted.

What-if analysis
It is much easier to complete a What-if analysis and find an optimal resource demand.

Risk analysis
If the volume of work is uncertain, the volume range could be used as a base for quantitative risk analysis. The same for productivity. Uncertainties in the productivity of resources also could be taken into account.

Productivity-based scheduling is realised in Spider Project and usually is the preferred way to manage project work.

See how it works in Spider Project:

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Julia Lyaschenko

PMO | Program Planning & Delivery Specialist | PRINCE2© Practitioner | SAFe© Agilist (SA)