13 October 2011
You can estimate costs after you have assigned your resources. Remember that you may know the actual people assigned to the project or you may have placeholders designating the type of resource you need.
Estimate Labor Costs
The cost of labor is derived by looking at the effort hours of each resource and multiplying by the hourly cost of each resource. In many companies, estimated labor costs for internal employees are assumed to be zero, since their costs are already accounted for in a departmental budget. This does not imply there is no cost. Rather, it assumes there are no incremental costs over and above what the company is already paying for.
If you calculate an average hourly cost per employee, this number might or might not include benefits. In some companies the employee benefits are added back into the full project estimate. In other companies, these costs are not factored in. If you include the benefit costs, it is usually calculated as a fixed percent of the hourly costs.
If you are using external contract or consulting resources, their costs always need to be estimated and budgeted. You have to determine the type of external resources you need and the hourly rate of the resources. Then you would multiply the hourly rate of each resource by the number of hours each resource will be assigned to the project. If you are not sure of the actual resource cost, you need to make some assumptions based on the general type of resource. For instance, there may be a standard hourly cost for accounting contractors or programming contractors. If you are not sure whether your project will include external resources, you can make some basic staffing assumptions and document them.
Estimate Non-Labor Costs
Non-labor expenses include all costs not directly related to salary and contractor costs. Some of these costs, like training and team-building expenses, are related to people. However, they are still considered non-labor since they are not related to employee salary or contractor hours. Note as well that in some companies, labor costs only include employees and do not include contractor costs.
Generally, however, non-labor costs include:
• Hardware and software
• Travel expenses
• Training
• Team building
• Facilities
• Equipment
• Material and supplies
Each project manager must be aware of the accounting rules in his own company to make sure the labor and non-labor costs are allocated correctly.
Document all assumptions
You will never know all the details of a project. Therefore, it is important to document all the assumptions you are making along with the estimate. |
