1. Financial Perspectives
Hewlett-Packard Project & Portfolio Management
Financial Perspectives
Financial Summary
Non-Labor Cost
This Deck will include all the elements related to Financial valuations and Reporting. Appropriate subsets are included in the Request Type presentations (Proposal, Project, etc). This deck is designed to be a discussion document for the Financial Stakeholders that may be outside of the direct process, but dependent upon it’s data and\or information.
Select the button to review the slides associated with each area. These should be viewed in slide show mode as there are transitions, and the Notes included with each slide direct the discussion and progression of the slides.
Elements not yet included (pending HP-PPM access and setup):
Capitalization and SOP 98-1 (Tasks, Activities and Time Sheets)
Table Utilization for Non-Labor Cost Management
Financial Table Utilization for Financial manual reporting and system interface segregation
Cost Roll-up functional control and Test Validations
Portlet Reporting Examples and Development Guidance
Labor Hour Valuation
Capitalization and SOP 98-1
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2. Financial Summary – Find the Financial Summary
1. Access the Proposal or Project through the Search Menu or Search Box in Upper Right Corner
2. Select the Financial Summary Link from the Proposal Request or Project Details tab or 1
3. The Project Cost Portlet on the Project Summary Page 1
* Enter the Proposal or Project ID or Name into the Search menus or entities box
* You won’t see this link or a message will be displayed instead of the link if you do not have the appropriate License, Security Groups or been granted access to the specific Request Financial Summary by the Project or Benefits Manager.
* Read
[* Next Slide] 2 3
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3. Financial Summary – Settings & Access2 1
1. The Financial Summary Settings should be set when the Initiative is Created.
2. The Benefits & Project Manager must assign individual Resources Access Rights in the Configure Access table.
3. The Background Fill represents the Burn Rate of the Initiative consuming the “Approved Budget”. The “Approved Budget” represents the initial Approved Cost as adjusted for Approved Change Requests. Select the View Approved Budget Details link. 3
Access the Financial Summary Settings button and check all three boxes. If Labor Dollar forecast are not to be rolled up from the labor hours reflected in the Staffing profile – then the middle box would not be checked. If the Capital Cost Tracking is not enabled, the type (Capital vs. Expense) dropdown will be excluded from the Add Cost function.
Through the [*Configure Access] button, select the Add user button and add the names of those that will provide the high level estimates (for Proposal) if known at this time. Edit Security provides access to change the access table.
[*Save] You must adjust the Forecast numbers to Actual in order to reflect the burn rate, otherwise the background reflects the planned burned rate and uses the Forecasted Costs for all Periods.
[* View Approve Budget Details] Each Approval is added to the Project Budget as Approved.
[* Next Slide]
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4. Financial Summary – Costs & Benefits1
1. Export to Excel to share with non PPM Users
2. Actual Cost-to-Date Summary 2
3. Labor Costs can roll-up from the Work Plan
4. Scroll Down to Edit Forecast & Actuals section 6 5 8
5. Set Display Parameters
6. Add Line for Forecasted Expenditures
7. Select Type, Category and, Expense Type
8. Enter $K in month expected to be billed
Read
[*] Actual Costs are consolidated in the header:
[*]Labor from Time Sheets or the Project Work Plan, Non-labor from Financial Summary entries or rolled up from the Work Plan. Often the Category Summaries are updated through a system interface from other financial systems.
[*] Read
[*] Read. Can select Year as well, as the Financial Summary can cover an 8 year period.
Select the “Edit Forecast and Actuals” link to make changes to the line item details (not values). [*]
You can edit the existing lines by selecting the > icon, or select [*Add Cost Line] button to add new lines. In a Program Financial Summary, the member Project Line Items are not editable in the Program Financial Summary.
Select the appropriate Type, Category and Expense Type for the Line Item to add. This will determine which section (Capital or Operating) the Line is reflected in. All of these validation lists (menu selections) can be modified to include whatever costs types and categories are needed. Most of the Entity Elements can also include User Data Fields, so an additional 20 fields can be added (configured) for additional information about these Line Items (Type, Vendor, Contact, etc). [*Add].
The Costs can be tracked in whole dollars, but this must be selected on system installation and is universal (for Financial Summary dollar amounts) [*] Simply enter the period values directly into the table.
[*] The Benefits section operates the same way to include Incremental Revenue, Savings or Cost Avoidance (Types) to be realized as the Benefits of the Proposal.
This concludes the Financial Summary section of the presentation. Return to Slide 1 [*Return] or continue for the Non-Labor Cost Management functions and approaches. [*] 9
9. Actual Costs entered the Same Way
10. Scroll Down for Benefits – Same Procedure
Return
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5. Non-Labor Costs – Cost Summary Portlet
1. Cost Summary Information is available in the Project Cost portlet via the Cost Detail button.
2. From the Project Summary Page select the Edit Work Plan button in the Work Plan Portlet. 2
On the Project Overview page
[*Cost Details] The left column of the summary relates to the values curently included in the Financial Summary. The Right hand column reflects the costs included in the Project Work Plan. These costs are not likely to be the same for a large number of reasons:
The Financial Summary has forecasted Labor Costs for the entire Project period based on the Staffing Profile (Demand reflected in the Resource Pools) primarily used for Financial Control and Demand Management.
The Work Plan Planned value reflects the Planned labor based on the Project Schedule, primarily used for tactical work management by the Project Manager. These values change daily based on the project work, issues, participation, discovery…..
Non-labor costs may or may not exist in the project work plan based on financial procedures related to their estimation, forecasting and booking of actual costs to the project.
[*] 1
Slide #5
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6. Non-Labor Costs – Work Plan Management
1. Create Milestone or Task for each expected payment, each Vendor or Monthly Totals 2
2. Select the Task and then the Edit Task Icon to record invoicing or payment (or double click the task line Status field to open the task tabs).
3. Select the appropriate Cost Category
4. Enter the Planned or Actual Values 1
5. On last actual update, set % Complete to 100% 2 5
Here’s one approach to managing the non-labor details in the work plan. Your financial management responsibilities and procedures should dictate the appropriate approach, entity and stakeholders for the management of these costs from Estimation to Forecast to Commitment to Purchase Order to Receipt to Booking.
Read
Keep in mind, this is a detail list. When is it defined? If it’s before I have a project work plan, then where are the details maintained already? Another option would be a Non-Labor Cost Table on the Proposal or Project Request or a separate Financial Table in the Proposal and\or Request.
[*] Read
[*] Your Milestone Date (Start and End should be the same) is set on the Schedule tab, and will determine the Financial Summary period the Planned and Actual Costs are displayed in if the non-labor costs are rolled up from the Work Plan to the Financial Summary.
[*] The Non-Labor Summary Task would then include the Total Project Planned and Actual Non-Labor Costs. You could alternatively intersperse the non-labor expenditures into the work task sections where they will occur (Server Costs into the Installation Summary Task), and then filter the Work Plan for Non-Labor Costs, which will also provide a distinct list of the details, both planned and actual.
This concludes the presentation related to non-labor Cost Management. To return to the Opening Selection Menu, please select the [* Return] button, otherwise continue to the Labor Valuation Discussion slides. [*] 3 4 4
Slide #6
Return
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7. Labor Hour Valuation – Cost Factors
Fully Loaded Rate
Time Sheet Policy
Resource Rate
Fixed Bid Rate = $0.00
Proposal Planning Rate
Notifications
The Cost Factors are selected and prioritized here. The higher on the list, the higher the priority. Like Security, however, a more detailed match with several columns will provide the Cost Factor applied to all hours (forecast and actual), at that time.
* Role is a “knowledge area”; drives Demand Mgmt. Larger than a skill; major area of expertise required. 15 & 25 is optimum.
* Selected on the Role / Skill tab of the Resource Profile
Most of these Cost Factors are associated with the individual resource, and are reflected in the Resource Profile. Skills provide an automated matching capability between Demand and Resources, but is optional.
* Resource type is typically the second layer of Cost decomposition. As you make your original estimates, the next most likely element to be known is the type of Resource that will be utilized or required.
* The Rate applied to employees is typically a blended rate of some view like Role, Organization, Resource Type or combination. The rate to be applied to the Full Time Employee is complicated, and explained on a later slide.
* You might identify Part Time Employee’s in order to define a separate Time Sheet Policy for the management of the Time Sheet reporting.
* The Contractor is normally an hourly rate resource, but should be a blended rate in the system. Typically the combination of Contractor and Role or Region, Contractor and Role will determine the rate for contractors.
* The Consultant is typically a fixed price contract resource. Hours might be assigned and tracked for work management and scope control, but a rate is set at $0.00 as the forecast and actuals are added to the Financial Summary based on the fixed price contract.
* The TBD Resource might be utilized for initial Planning of Proposals to apply a specific rate which is later updated based on more specific planning.
* The Business Resource could be included in the Staffing Profile and Project Team for engagement planning, Notification receipts or other collaborative efforts unrelated to work plan tasks. They may or may not have a rate associated with hours, and may or may not track hours (so would also drive the Time Sheet Policy for this group of Users).
* The Resource General tab includes the balance of the resource related cost factors. The Resource Type is here, as well as on the Staffing Profile, which enables that level of estimation long before a resource is allocated.
* Department is the third candidate, as it is otherwise reasonably inert. It enables multiple levels of organizational units to be tied together based on the available and\or responsibility for budgets and a blended rate covering a common group of people.
* Region is a commonly used Cost Factor, particularly with multi-national organizations. Care must be used as this field is also the determinate of the optional local Language and Currency utilized by this resource.
* Org Unit, while a popular Cost Factor is inherently maintenance intensive. Organizations that are frequently changing will cause frequent recalculation and rate changes, and difficult cost analysis. Many of these terms are default filters and reporting parameters in addition to the Cost Factor functionality.
* Project is an effective Cost Factor utilized with Contractor’s from large companies, working many projects with different rates.
Resource isn’t recommended due to tighter data sharing security requirements driving more complexity and maintenance.
The optimum configuration is Role, Resource Type and then Department or Organization, and Project if applicable. [*]
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8. Labor Hour Valuation – Cost Rules
Rob Grace, when allocated to a Staffing Profile, will change the Forecasted Cost in the Financial Summary from the prior Resource Type \ Role Rate utilized for the Proposal. It will also be utilized to value all actual labor entered by Rob.
If Rob Grace is a Practice Director from the Oracle Resources Region, he will still be charged at the $135\hour rate, as the Resource column takes precedence over any to the right.
Any other Resources from the Oracle Resources Region who are also a Practice Lead will be charged at the $247\hour rate (Rule 29), unless they are also listed in the Resource column (this would not make sense in the real world).
Cost Rules define the Labor Hour Rate associated with various Cost Factor combinations. The Cost Factors take precedence from the left column to the right (as determined by top to bottom in the Cost Factor setup). This configuration is using Resource, Resource Type, Role, Org Unit, Region and then Project, in that order. Notice the Cost Warning ! This shows up in Cost views when changes that may affect costs have been made to an entity (specific Project), and identifies when the next cost roll-up will take place.
[*] So when Rob is allocated to the Staffing Profile, since he is individually listed in the Cost Rule, those hours get revalued using his $135\hour rate.
[*] If he were in the Oracle Resources Region, and was a Practice Director, Rule #4 would take precedence.
[*] Rule #1 will always be a default rate with no parameters that will be applied if no match is found.
[*] Read
[*]
There is always a default rate.
Rate Changes are Effectivity Date Driven, so a Rate change entered in a prior period will recalculate all costs except on Frozen Time Sheets and Closed Projects
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9. Labor Hour Valuation – Cost Rates
Determining the Cost Rate sounds like a simple process. We’re talking about employees here. Insuring only those that are authorized to see (or be able to determine) individual rates is always a concern, and a challenge. Here are the considerations for the rate determination:
The Work Calendar is 2,080 hours in 52 weeks. With an annual salary of $52,000, that’s $25.00\hour as the payroll rate for an salaried employee.
* Except the employee isn’t at work 3 of those weeks, and has short weeks for many of the others.
* So if we remove those hours, we’re left with only 1,936 hours at work. That’s $28.02\hour if we wanted to distribute the cost of the employee over the hours he’s actually at work. There are Time Sheet, Capacity Planning and Financial Reporting (Capitalization) ramifications to using one rate vs. another. You can tell from the spacing of the line items, we’ve got a long way to go, and already there are significant questions. Bear in mind we should also be looking at a average rate across many individuals to be applied at a Role, Department, Organizational or Regional level. It won’t get any easier.
* We’re talking about employees, so some of the time they are at work, they’re not working on their work. They go to Training if we want them to stay current
* They do volunteer work, they go to HR and departmental meetings, so we’ll lose some more hours.
* So now we have a rate of $29.73, 18.9% higher than our payroll rate. Considerations. What we want to know is the total cost for an hour of productive work. That means we have further reductions in our real capacity.
* That drops our available hours to work down to 1,749, and bumps the rate to $29.73, 19% higher than our payroll rate. Considerations
* We know, even when they are on task there are interruptions, collaboration, project team meetings and reviews, none of which is typically scheduled and therefore considered related to Capacity to do work. When we estimate the Work Content in the Project Schedule, it’s typically heads down, get on with it, how long does it take.
Even considering the on task effort, an expert can accomplish the script in an hour, a novice it might take 3 days to figure out the HOW. There are still project things to do that don’t relate to a task or assigned deliverable. More hours lost.
* This drops us to only 1,264 hours of effective work measured in production hours. That drives our rate up. Tracking would be impossible and very subjective.
* In order to get to a comparable Contractor rate, you’d have to add in the other direct costs associated with the employee. Payroll taxes.
* and Benefit Costs. These are real cash costs that are being charged to someone’s budget and need to be considered.
* That raises our cost now to $58,760, and our rate to $46.50, up by 86% from our payroll rate, but all real costs! Are they Project Costs?
* If we want to compare to contract costs, then we need to add in the Management of the employee, as the Contractor’s Management Costs would be included in their contract rate.
* You’ll need to consider the other Overhead costs for a roof over the head, HVAC, computer, etc, although you may or may not have with onshore contractors vs. offshore contractors.
* We’re about to run out of space, but our rate to absorb all the costs associated with an hour of productive output is $48.15, almost double the initial payroll rate. All of these costs are real and being reported in the financial systems. Time Sheet’s don’t relate to Production Hours Output. They relate to hours of accountability – work or benefits, they need to be tracked and reported.
* Oh we forgot, they aren’t working 40 hours a week, they work overtime, so we need to “normalize” their hours or rate to compensate. So adding 10% overtime to the available hours worked, factoring them for the same inefficiencies, we end up with 1,405 hours to absorb our costs, resulting in a $43.29 rate.
* Close the loop and develop a rate that we can effectively manage, we need to distribute Cost over the hours to be accounted for. That results in a Direct Hour Cost rate of $25.82 for 2,276 hours to be recorded on the time sheet. Only 3.3% off the original payroll rate.
* To absorb all the costs (including the Management & Operations overhead), the rate ends up at $26.73 for each of the 2,276 hours to be logged on Time Sheets. Only 6.9% higher than our payroll rate.
We could argue and debate the numbers, but it won’t change the fact that there are many to choose from. There are reporting, control and Financial impacts for every number selected. The point is, all of these costs are being charged against operating budgets today. They are all real costs. There is no single number that can be utilized for Project Accounting that will not result in deviations between the reflected project cost and the associate real costs. It would be impossible to reconcile these two sets of numbers. They have two very different purposes. The rate must be consistently applied, and consciously defined to be one of the above. Appropriate reporting to accomplish the objectives must be defined.
These rates must be obtainable, and maintainable, at the level at which you choose to apply them. Consistency in application to provide a relative measure across all efforts, organizations and projects is the key to establish useful, ationable information. Finite accuracy is an impossible target.
To reflect the fully loaded cost of work, $60,840\1,749 hours worked = $34.79\hour. All PTO, Holidays, Training and Non work hours could be coded to Misc codes with a $0.00 cost rate. This would more closely reflect the real project cost and still facilitate Time Sheet tracking at 40 hours per week.
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