Using Microsoft Office Project 2007, you can estimate and track basic cost (cost: The total scheduled cost for a task, resource, or assignment, or for an entire project. This is sometimes referred to as the current cost. In Project, baseline costs are usually referred to as "budget.") information for your project. You can use a variety of types of costs, and Project 2007 calculates those costs for you as the project progresses.
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What types of costs are available in Project 2007?
Costs are an important aspect of project scheduling and control. Project 2007 provides for several types of costs. By using Project 2007, you can enter and track the following types of costs:
- Rate-based cost, a cost that is calculated based on the pay rates (pay rate: Resource cost per hour. Project includes two types of pay rates: standard rates and overtime rates.) that are specified for a resource (resources: The people, equipment, and material that are used to complete tasks in a project.) and the amount of work (work: For tasks, the total labor required to complete a task. For assignments, the amount of work to which a resource is assigned. For resources, the total amount of work to which a resource is assigned for all tasks. Work is different from task duration.) that is performed by that resource.
- Per-use (per-use cost: A set fee for the use of a resource that can be in place of, or in addition to, a variable. For work resources, a per-use cost accrues each time that the resource is used. For material resources, a per-use cost is accrued only once.), a cost that is incurred either once each time that a resource is used, or once for each complete task (task: An activity that has a beginning and an end. Project plans are made up of tasks.) that the resource is assigned to.
- Fixed (fixed cost: A set cost for a task that remains constant regardless of the task duration or the work performed by a resource.), a cost that is set for a task and not for a resource. A fixed cost does not change, regardless of task duration (duration: The total span of active working time that is required to complete a task. This is generally the amount of working time from the start to finish of a task, as defined by the project and resource calendar.) or the work performed on the task by a resource.
- Cost resource (cost resources: Resources that don't depend on the amount of work on a task or the duration of a task, such as airfare or lodging.), a resource that allows you to accumulate one-time or periodic costs that belong to a task. Cost resources might include airfare and lodging. This is typically a one-time cost per task, but the cost resource assignment can be contoured (contour: The shape of how scheduled work for an assignment is distributed across time. Use a contour to control how Project schedules the work of a resource. Contour examples include flat, back-loaded, front-loaded, bell, turtle, and more.) across the duration of the task if you have installed the Infrastructure Update for Project 2007.
- Budget resource (budget resource: A budget resource captures the maximum capacity for a project to consume money, work, or material units for a project. Budgets can only be applied at the project level by assigning a budget resource to the project summary task.), a resource that is applied toward the project as a whole. Budget resources represent the maximum capacity for a project to consume money, work, or material units. However, this doesn't mean that a project can't exceed its budget. Rather, a budget resource gives you a way to compare your planned numbers with your ongoing costs, to help you keep track of the fiscal health of your project.
- More than one type of cost can be entered for a single work resource. For example, you might enter an hourly rate for the resource's work, but also a per-use cost for the travel time or other expenses.
- The various cost types operate in differing ways, depending upon whether the resource is a work resource (a person), a material resource (material resource: The supplies or other consumable items that are used to complete tasks in a project.) (such as cement or rebar, or a cost resource (cost resources: Resources that don't depend on the amount of work on a task or the duration of a task, such as airfare or lodging.) (such as airfare). For work resources, the rate is applied per unit of time. For material resources and cost resources, the rate is applied per other specified units (such as tons, yards, or the units of a selected currency).
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How do you create budgets and track costs against them?
Budgets can be created and tracked from either of two directions, by using either a bottom-up (bottom-up estimating: An estimating method in which the base costs of individual work items or resources are calculated into task, resource, and project cost totals.) or a top-down (top-down estimating: An estimating method that uses the actual costs of a previous, similar project as the basis for estimating cost totals of a current project. This method is often used when there is limited information about the project.) estimating method. Project 2007 supports both methods.
Creating a budget by using a bottom-up method
In a bottom-up approach, base rates or per-use costs for resources, and fixed costs or cost resources (cost resources: Resources that don't depend on the amount of work on a task or the duration of a task, such as airfare or lodging.) for individual tasks (task: An activity that has a beginning and an end. Project plans are made up of tasks.) are estimated. Project 2007 calculates cost totals for resources, tasks, and the entire project. This method (also known as bottom-up estimating (bottom-up estimating: An estimating method in which the base costs of individual work items or resources are calculated into task, resource, and project cost totals.)) helps produce reliable and accurate results.
When you create a bottom-up budget in Project 2007:
- First, you enter pay rates, per-use costs, fixed costs, and cost resources.
- Next, you enter the estimated work or duration for each task.
- Finally, you assign resources to tasks.
Note Budget resources are more appropriate for use in top-down planning. They can be applied at the project level only by assigning a budget resource (budget resource: A budget resource captures the maximum capacity for a project to consume money, work, or material units for a project. Budgets can only be applied at the project level by assigning a budget resource to the project summary task.) to the project summary task (summary task: A task that is made up of subtasks and summarizes those subtasks. Use outlining to create summary tasks. Project automatically determines summary task information [such as duration and cost] by using information from the subtasks.).
then calculates the total estimated costs of completing all tasks in the project. If this total is not in alignment with your budget, you must adjust pay rates, resource assignments, and so forth.
After you refine the estimated costs, you can save a baseline plan (baseline plan: The original project plans [up to 11 per project] used to track progress on a project. The baseline plan is a snapshot of your schedule at the time that you save the baseline and includes information about tasks, resources, and assignments.), thereby establishing a budget for the project.
With a budget in place, you can compare actual expenditures against the amounts that you planned to spend and then make any necessary adjustments to stay within the budget. In most instances, all that you have to do is enter actual cost amounts for each task. Project 2007 calculates the task's cost based on the project's progress. You can also enter specific costs, if needed.
Note You can view cost totals for tracking purposes in any of three ways: in the Project Information dialog box, in Project views (particularly the Task Usage and Resource Usage views), or in a report. Using Visual Reports, you can also export this cost information to other programs, such as Microsoft Office Excel 2007 and Microsoft Office Visio 2007.
Creating a budget by using a top-down method
In a top-down approach to budget estimating, overall resource, task, and project cost totals are estimated based on previous experience of similar projects. If you have a fixed maximum amount of money that you are able to spend on a project, a top-down budgeting method is preferable to a bottom-up method.
When you create a top-down budget for your project:
- First, you create budget resources (budget resource: A budget resource captures the maximum capacity for a project to consume money, work, or material units for a project. Budgets can only be applied at the project level by assigning a budget resource to the project summary task.) that represent the overall budget for the project, including budget resources for costs, work, and materials.
- Second, you assign the budget resources to the project summary task. In this way, budgets are applied to the entire project.
- Third, you enter values for the budget resources.
- Fourth, you indicate which other resources in your project you want to track and measure against the overall budget resources. You do this by creating a custom field for all resources in your project and then categorizing each of the resources (including the budget resources) by specifying in the custom field a value that indicates which budget type the resource is being measured against.
- Finally, after you categorize all resources by budget type, you group the resources to view how they compare to the overall project budget.
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What are rate-based costs, and how are they calculated?
Rate-based resource costs are costs of work resources (work resource: People and equipment resources that perform work to accomplish a task. Work resources consume time [hours or days] to accomplish tasks.), such as people or rental equipment, to which you assign standard and (if appropriate) overtime rates (overtime: The amount of work on an assignment that is scheduled beyond the regular working hours of an assigned resource and charged at the overtime rate. Overtime work indicates the amount of the assignment's work that is specified as overtime work.), usually assessed on an hourly basis. When you assign a resource to a task, Project 2007 calculates the total resource cost by using the specified hourly resource rates and the time (or duration (duration: The total span of active working time that is required to complete a task. This is generally the amount of working time from the start to finish of a task, as defined by the project and resource calendar.)) that it takes to accomplish the task.
Note By default, Project 2007 uses standard resource rates to calculate costs for the entire amount of work used to complete a task. Project 2007 does not automatically calculate additional hours as overtime work, unless you specifically assign the additional hours as overtime.
Because work always represents the total amount of work completed, the amount of overtime work is included in, not added to, the total amount of work. For example, if a person is scheduled to work 40 hours over four days, consisting of 8 hours of regular work and 2 hours of overtime work per day, you assign 10 hours of work per day, and then designate 2 hours of those 10 as overtime work. Project 2007 calculates the cost of the hours specified as overtime work by using the specified overtime rate. The remaining hours are calculated at the standard rate.
Rate-based material costs are the costs of consumable material resources, such as building materials or supplies, to which you assign standard rates (but typically not rates calculated per hour). To assign costs for material resources, you set the rate per unit of material, such as a rate per yard or a rate per ton. When you assign a material resource to a task, Project 2007 calculates material cost totals by multiplying the specified material resource rate by the number of material units used to complete the task.
Work resources sometimes have a cost rate table (cost rate table: A collection of information about a resource's rates, including the standard rate, overtime rate, any per-use cost, and the date when the pay rate takes effect. You can establish up to five different cost rate tables for each resource.) applied to them when costs are calculated. A cost rate table is a collection of rates and per-use costs for material and work resources. Project 2007 provides five cost rate tables, named A through E (the names cannot be changed), so that if a resource charges separate rates for separate types of work, you can assign as many as five separate sets of rates to that resource. For example, if a carpenter charges a higher rate for finish work than for framing, you can apply one cost rate table to the finish work assignment and another to the framing assignment.
In each cost rate table, there are up to 25 rows that you can use to enter future rate changes (such as pay rate increases or material cost changes). For each rate change, you specify the date that the change takes effect. For example, if you know that a resource will receive a pay increase in six months, you can set Project 2007 to automatically start using the new rate at that time.
Note If you are using Microsoft Office Project Professional 2007 and working with enterprise resources (enterprise resources: Resources that are part of an organization's entire list of resources. Enterprise resources can be shared across projects.), your organization may choose to put restrictions on rate tables. For example, your organization may designate rate table A for billing rates and rate table B for nonbillable rates. Contact your administrator (administrator: Sets up and manages user accounts, assigns permissions, and helps users with network or server access issues. This person can also manage and customize various elements in Project Professional and in Project Server.) for more information.
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What are per-use costs, and how are they calculated?
Per-use costs are one-time fees for the use of a resource, such as equipment. Per-use costs never depend on the amount of work done. Instead, they are one-time costs that are incurred every time that the resource is used. Although a per-use cost for a work resource depends on the number of assignment units (assignment units: The percentage of a work resource's time, or units, that the resource is assigned to a task.) used, a per-use cost for a material resource is applied only one time. For example, if a brick layer has a per-use cost of $100 (instead of an hourly rate) and it takes three brick layers to complete a task, the cost is $300. But a per-use delivery cost of $100 for a material resource like cement is applied only once per delivery, whether 10 tons of cement are delivered or 100 tons.
Note Per-use costs are set on the Costs tab of the Resource Information dialog box.
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What are fixed costs, and how are they calculated?
Fixed costs are costs for a task that remain constant regardless of the task duration, the amount of work that is performed by the resource, and the number of assignment units.
Note A rate-based resource cost can increase when a task takes more time than projected, but a fixed cost does not. For example, if a carpenter is a rate-based resource (that is, if he or she is paid hourly) and is scheduled to complete a task in five days but actually takes seven days to complete it, the carpenter is paid more than was budgeted. If the carpenter is paid a fixed cost for the work, however, the cost remains the same, regardless of how long the task takes to complete.
You can assign fixed costs to a task to which rate-based resource costs are also assigned. For instance, if a rate-based resource that is assigned to a task also incurs travel costs, you can add the travel costs to the same task as a fixed amount. Fixed costs are included in the cost totals, both of project phases (on summary tasks (summary task: A task that is made up of subtasks and summarizes those subtasks. Use outlining to create summary tasks. Project automatically determines summary task information [such as duration and cost] by using information from the subtasks.)) and of the whole project.
Note You set fixed costs in a task view (such as a Gantt Chart) by applying the appropriate Cost rate table, and then setting the cost amount in the Fixed Cost field.
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What are cost resources, and how are they calculated?
Unlike fixed costs and per-use costs, cost resources (such as lodging or airfare) are created as a type of resource and then assigned to a task. Unlike work resources, cost resources cannot have a calendar applied to them. The amount of the cost resources doesn't depend on the amount of work done on a task.
If you have installed the Infrastructure Update for Project 2007, then cost resources can affect the start or end date of a task. For example, if you have a task that begins August 1 and ends August 15, and you assign a cost resource with a value of $500 on August 21, the end date for the task is extended to August 21 to account for the cost resource assignment.
Cost resources are used when you want to apply (to a single task) multiple separate miscellaneous costs that aren't changed by the amount of work that is performed on the task. For example, an executive working on a new project proposal might have three separate cost resources applied to him or her: one for airfare, one for food expenses, and one for hotel room expenses. In this way, several "fixed" costs can be applied to a single task. Unlike with work resources and material resources, cost rates cannot be applied to cost resources.
Note Cost resources are created on the Resource Sheet. (On the General tab of the Resource Information dialog box, click Cost in the Type list.) After you create the cost resource, you can assign it to tasks as needed. After the cost resource is assigned to a task, you can set the amount of the cost by using the Task Information dialog box for that task, the Assignment Information dialog box for that task, or the Task Usage view that has the Cost table applied.
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How can you regulate cash flow?
When assigning costs to tasks and resources, you can specify when the costs accrue (accrual method: Determines when the cost for a resource is incurred and when actual costs are charged to a project. You can incur costs at the start [Start] or finish [End] of a task or prorate them [Prorated] during the task.). If cash flow is a critical factor in your project, you may want to change how costs accrue for individual tasks, to make sure that they accrue only when you have sufficient funds available to pay for them.
Except for per-use costs, which always accrue at the start of a task, Project 2007 prorates costs by default and calculates cost accrual based on the percentage of the task completed, distributing the accrual over the whole duration of the task. However, you can also have costs accrue either at the start of a task (if you have a lump-sum amount that is payable at the start), or at the end of the task (if you are holding payment until the work is finished).
Note The accrual method can be set in any of several ways, depending on the type of cost. For most types of resources (including work, material, and cost resources, and also per-use costs) you set the accrual method on the Cost tab of the Resource Information dialog box. For fixed costs, you set the accrual method by using the Fixed Cost Accrual field.
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