cost management - ITM Platform | Projects Programs Portfolio

Man-hours, also called person-hours, are the unit of measure that is used in project management to measure the efforts needed to complete a task.

1 man hour = work completed in an hour of uninterrupted effort by an average worker.

Calculating man hours is the basis for being able to measure the cost per project of each type of expert and his contribution to the result.

Start calculating the costs of all your resources by professional categories with ITM Platform

The total man hours per task is obtained by multiplying the number of people assigned to a task by the total time it takes to complete it.

Let's say, for example, that 15 workers at a metal plant and devote 10 workdays to complete an order of 800 product units.

Estimating 6 working hours per day, the total man hours is obtained from multiplying the following:

15 x 10 x 6 = 900 hours

Therefore, productivity is equal to 800/900 = 0.89 units per hour. As we know with the cost of man-hours, it is easy to calculate how the labor force contributes to the unit cost and the profitability of the product line.

In addition, this ratio can be taken as a starting point for measuring productivity improvements, introducing new processes and cutting costs.

However, in a more complex project it would also be necessary to consider that the cost of man-hours is variable, depending on the professional category to which it corresponds.

Not all team members cost the same

A requirement to be able to calculate the total labor cost of the project is to consider different hourly rates for each professional category. In an IT project, for example, it will not cost the same for one hour of a junior programmer as a senior one.

Therefore, when calculating the cost of the project from man hours, you must take into account that the multiplication of the cost must be factorized by each category:

Total cost = (CH1 x HH1) + … + (CHn x HHn)

Where CH1 is equal to the hourly cost of the professional category 1 and HH1 is the total of man hours estimated by the professional category 1.

Cost per project calculation with ITM Platform

ITM Platform allows you to calculate the costs of tasks and projects with man hours. For this you only have to define the values of 3 variables:

The professional profiles of your organization

The fees associated with each professional profile

Standard costs, which will be calculated when a generic worker is assigned.

See in this tutorial how to define professional profiles, rates and standard costs in order to calculate the cost of all your tasks and projects.

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There’s nothing worse than going over budget or going into debt while working on a project. To prevent this from occurring businesses develop cost management, companies can employ the cost management structure to single projects or their business as a whole.

Cost management is the process of planning and controlling a business’s budget. It starts from the initial planning phase and covers the full project cycle. After applying cost management, all costs will be calculated, recorded and monitored. This allows a business to predict future expenditures in order to reduce their chances of going over budget. Once the project is completed, predicted and actual costs will be compared in order to help calculate future budgets.

To help you develop a stronger understanding of the topic, take a look at the following 4 steps of project cost management which are outlined in the PMBOK:

1. Planning Cost Management

The initial phase of cost management involves defining the resources required for the completion of all project activities. A good way to get this started is by creating Work Breakdown Structures (WBS) or listing previous information and comparable projects that will help you discover which resources will be needed. Make sure you also take into account other resources like labour and required time for task completion. Once you know all the necessary resources and their quantitates, you’ll be able to easily calculate their cost.

2. Estimating Cost

The biggest component of cost management involves predicting how much it will cost you to complete the project. The cost estimating method that you choose to use will depend on the amount of information you have available about the project and project tasks. Naturally, estimates can be altered as more information becomes available. Over time you will have a cost estimate with a very high accuracy. However, until then you should seek assistance from a strong project management software, such as ITM Platform. Project management tools like ITM Platform offer cost management which will help your business monitor costs, decrease uncertainty and increase profitability.

3. Determining your Budget

Cost estimates will help define the expenditures involved with specific project activities and the overall cost of the project. Whereas the budget allocates project costs over a longer period of time to create a cost baseline which should be the starting point for your current and future projects. Essentially it will provide you with a good idea as to how much money you have to spend on the project.

4. Controlling Cost

Cost control involves measuring any inconsistencies that arise and are different from the set cost baseline. Once you discover them, you will need to take corrective actions to avoid cost overruns. Anything that strays away from the cost baseline needs to be recorded and the forecasted total cost should be altered to include these changes.

Use a cost control tool like the one provided by ITM Platform to help define cost and track, apply and approve all changes. Furthermore, cost accuracy and consistency are more likely to maintain when you have a strong software and great staff guiding you.

Go onto http://www.itmplatform.com to find more useful information about the fantastic PPM solution.

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