month we’ll have a closer look at setting up costs.
Not An Accounting Package
I do not have any financial
training and I’m grateful to those who have a better insight than me, so
I’ve dragged phrases out of the newsgroups to summarize what Project isn’t
and cannot do.
and foremost, Microsoft Project is NOT
an accounting package.
It is not intended to give, and it does not provide, the facilities to do
detailed accounting or
It will not provide cost-accounting, pay-roll figures, or the tracking of
inventory costs, overhead costs, salaries, or inflation costs. It
does not handle Purchase Orders, Change Orders, Asset Requests, Approvals,
Purchase Orders Invoices, payments and retentions, and is rotten at keeping
track of money to the level of accuracy you need for making payments. It
is not interested in profit, revenues, payables, receivables, time-and-billing,
professional fees and it does not track Vendors or Vendor Contracts. All
these are facets of accounting and time-and-billing programs. Managing the
overall costs of employment of a resource is a job for accounting applications,
not project management applications and Microsoft Project is no different.
It is not concerned with the costs to the company of the resource doing anything
else other than the specific project tasks.
So what does it do? Well, Project is a critical path scheduling
tool and oriented to scheduling and
managing work, not finances. The costs in Project are bottom-up budgets -
predictions of what something will cost, not top-down limits on how much
you're allowed to spend. It does cost estimating and tracking, but
that is only for budgeting and progress tracking purposes. All it is concerned
with is the direct costs of getting the deliverables within the specific
project done and has no direct provision for overheads and other costs of
start with setting up some resource costs. Create a new project starting
on 31 May 04 (discard the old Garden project we were using last time as it
will probably still have non-standard calendars set up) and enter a task “Make
Terraces” with 10 days Duration.
Now assign Fred to that task. Check from a split screen that he is assigned
80 hours of Work. Double-click Fred’s
name (although you can double-click on
a resource’s name in many views, like the Resource Sheet, that show
the resource name) and in the resulting Resource Information dialog,
click on the Costs tab. Click in
the first Standard
enter “20” and press Return.
Project will show the per hour rate.
The currency shown is that selected in Tools/Options.../View tab,
where you can enter a default currency. However, you can have only one currency
Having entered 20, when you press Return,
the “£” (or whatever you have set up) and “/hr” will automatically be inserted
for you, and the cursor will drop down to the next cell, ready for another
entry. Equally, if Fred was paid by the week or year, then you will have to
enter, say, 500/w or 20000/y – try it!
Ah! But what is the Standard Rate, did I hear you
say? Well, it should not be solely his wages, but the cost to the project of
using this man. It should include his wages, training costs, holidays, pension
scheme, etc, i.e. whatever it costs the company to use this man on this project
compared to whatever else he could be doing to earn money for the company.
These figures should be obtained from the company’s accounting department.
Many companies produce a series of equivalent, rationalised or equalised wages
to cover a variety of employees – use these costs as your “standard”. Remember
you’re not using a cost-accounting system, but inputting figures on which you
can budget and track the project’s costs.
Now, these rates are used by Project to calculate the cost
of each task on which Fred is employed. Project will calculate by the minute
( actually by 1/10th of a minute, irrespective of the units entered
in the Standard Rate cell) to arrive at £1600 (£20/hour * 80 hours).
You can see the resulting task Total Cost from the Gantt Chart view,
then View/Table: Entry/Cost.
The Cost tab allows profiling of the resource’s cost.
The Effective Date will show “- -“ if the resource is available at the
start of the project, otherwise it will show the first date on which he is
available. Profiling allows Project to take into account changes in costs as
time goes by.
Suppose Fred has a 5% increase in wages from 7 Jun 04, enter
that and when you press Return,
Project will calculate the new rate as £21/h.
And take that into account for the task’s costs (5 days
to 6 Jun at £20/h = £800 and another 5 days from 7 Jun at £21/h = £840) which
now total £1640.
You can also check costs from the Gantt Chart view:
split the screen, right-click in the lower pane and select Resource
Costs can be applied by project at the beginning or end
of the task, or spread evenly throughout the task (prorated). In the Resource
Information dialog, click the drop-down arrow in the Cost accrual: box
and select from the pick list.
A total of 25 different rate levels can be applied to allow
for cost changes with time. In each, standard, overtime and per
use (e.g. a machine might cost £1000 per use) rates can be entered. In
addition, if resources will work on various tasks that require different base
rates (e.g. a different rate for on-site working and another for in-office
working), up to five different base rates can be assigned in tabs A to E for
each resource so that the correct rate for each task assignment can be selected.
From the Resource Usage view, double-click on
the Terraces task to bring up the Assignment Information dialog. Here
you can select the appropriate Cost rate table from
the pick list.
costs will be accounted for provided work is entered as overtime. Project
does not automatically calculate additional hours as overtime unless they
are specifically assigned as overtime work. Assignment is made in the Resource Work form
viewed from a split Gantt chart screen,
by right-clicking and
the number of overtime hours for each resource in the Ovt.
The amount of overtime work specified does not get added to the amount of
work for the task. Work always represents the total amount of work. Overtime
work merely represents the portion of the total amount of work that should
be considered and costed as overtime work. For instance, if a person works
10 hours, which includes 8 hours of regular work and 2 hours of overtime
work, assign Work at 10 hours and overtime work at 2 hours, not work at 8
hours and overtime work at 2 hours. Project spreads the amount of overtime
evenly over the span of the assignment. Try not to plan to use overtime as
this is one of the few tools a project manager has to catch up on a task
that's running late - overtime should be used as an emergency facility, not
as part of the original plan.
will then need to put a value into the Overtime Rate cell (usually at a higher
rate than the standard of £20: say, time-and-a-half would be £30/h), otherwise
overtime will be free! Remember, this is the cost to the company of the overtime
work, not necessarily the cash that Fred will get.
enter material costs that are based on a unit price, assign a Per-use cost
to a material resource before assigning this resource to a task. When specifying
how many units to be used, Project will calculate the total material cost
by multiplying the base unit price by the number or percentage of units specified.
we can see from the Costs table
that we were looking at earlier in the Gantt Chart view, that there
is a facility to enter Fixed
Costs – this
is the only place you can enter these. Let’s say that the Make Terraces task
requires the purchase of old railway sleepers at a cost of £200. Then enter
that figure in the Fixed
Notice that the task Total
by that amount to £1993. If you have a summary task, Fixed
not rounded up although they are added into the Total
This allows you to place a Fixed
a summary task, for example, the garden designer’s fee for the project could
be entered into the Fixed
for the project summary task.
month we’ll have a more detailed look at customizing fields.