Project Costing in 5 Easy Steps

Liz Pearce | July 17, 2012

Project Costing 1
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Picture the scene: You’re a project manager for a web agency. You’re sitting in a meeting with your boss, describing two new potential projects. Each one will bring in the same amount in revenue, but you can only take on one with your current team. How do you decide which one to go with? While there may be other considerations, knowing the cost of each project will help you make a better decision about the right project to manage.

How do you figure out the cost of a project? In LiquidPlanner, it’s easy. There are some initial steps to complete, but after that, project costing is extremely repeatable. In fact, it may become an integral part of your business development and prioritization process. Let’s dive right in.

Step 1: Build out your project

First things first. We need to list out the tasks required to complete the project and the best-case / worst-case estimate for how long those tasks will take to complete. It’s ok to be a bit vague at this point. Your ranged estimate will help capture any uncertainty you have about the work in your plan.

The sample project below is broken into three folders to reflect the type of work that will be required.

Project costing--required work

Step 2: Invite your team members and assign them work

While you may be a rock star manager, you’re probably not going to take on a project single-handedly. Add members to your workspace and assign them to the tasks they’d likely be working on. You can use virtual members (as I’ve done below) if you are just modeling at this point.

Project costing--inviting team members
Project costing–inviting team members

Step 3: Create custom activities

Activities are used to categorize the work you do on a specific task. For instance, the task “Code Front-End design” would have a “Development Work” activity associated with it. These activities can be used for modeling and projecting costs, as we’re doing here, and are also used when tracking time (each timesheet entry is mapped to an activity). For this example, we’ve kept it simple. The activities we’ve added below map directly to the subprojects in the New Website project.

Project costing--custom activities.
Project costing–custom activities.

Step 4: Update your pay rules (+ rate rules for added bonus)

Here’s where you’ll probably need to go off and do some research. To determine the cost of the time spent on the project, you’ll need to understand the fully-burdened cost of each employee’s time at the hour level. The fully-burdened costs should of course include the hourly salary, but also account for taxes and benefits, facilities cost, and the like. Your organization may already have a formula for determining this number. When you’ve gathered your info, you can go to the Pay Rules and associate that cost with a person, activity, and more.

The fully burdened hourly costs for my team members are listed below. Note that I’ve used the Pay Rules for this information. I’ll also put in my billable rates for each team member in the Rate Rules table so I can compare what is going out to what is coming in.

Project costing--pay rules.

Step 4.5: Assign activities to tasks

Admittedly, I’m cheating a bit here, but this piece is so easy it almost doesn’t deserve its own step. This is where we link the rate you just entered to the tasks in your project. We do this by assigning each task a default activity. Simply select a task (or better yet, select multiple tasks), open the detail edit pane by hitting enter, select the appropriate activity, and save.

Project costing--activities.

Step 5: Use analytics to see your project’s cost

Now that you’ve entered the tasks, people, and rates associated with your project, you can click on a Project Report in Analytics to see the grand totals. The “$ Pay Total” column tells me the fully burdened cost of the work being done on the project. The “$ Total Billable” column tells me what I should earn from that same work. The difference between the two is profit to the bottom line. (Note that you’ll want to customize your columns to show these data points.)

Using this formula, you can cost all of the projects in your pipeline, see which ones are most profitable, and use that information to inform your project prioritization, resource assignments, and more. Cool, right?

Project cost--money in the bank.

Need help costing your projects? Contact us for a free consultation!