HOW TO CALCULATE THE

COST OF TIME UNITS

IN SOFTWARE INDUSTRY
A concept paper seeking the formation of a taskforce to set timely rate
cost standards for Egyptian software SME ‘s companies

20 Oct. 2009 By; Alaa S. Al-Agamawi

Objectives (Why cost of units)…

Calculating the timely rate costs in Software companies
represents an important corner stone in…

Any business improvement process for our companies.

More cooperation between our members.

Future task forces to talk about best practices.

So we need to…

Having a well-thought-of methodology.

Contributing together to apply this methodology in order to
come up with reliable results.

Disseminating the results to all members.
Approach…

Forming a task force that can come-up with a good estimate for the
cost of person/hours, person/days and person/months for different
software activities.

Accepting some approximation in the beginning provided that there
should be continuous future refinement.

Forming a questionnaire that it is to be distributed to all members
and even none-members.

Gathering data in an anonymous way that preserves companies
confidentiality.

After this, we should make many awareness sessions to all stake
holders to evangelize our findings.

Each of us can also use the findings in enhancing his company’s own
performance (participants or everybody).
Agenda

P&L Statement

Why costing?

Billable and non-billable hours

Software Industry – a time dependant industry

The Editor’s desk

Dairy Farms and Cheese Factories

Days and hours in a typical month

Net salary vs. Gross salary

Indirect cost

Software subsectors

What’s next?
P&L Statement Keywords…
Revenue
COGS
Gross Profit

Profit is the spirit of any Net Profit
business entity, without which
it can never grow and would
even be subjected to many
problems.

Cash flow is a killer.
Retaining positive cash flow
that covers at least a period
of three months should
always be considered
among the highest priorities.

P&L statement, Cash Flow
statement will represent a
good indicator for your
company financial health .
Why Costing?

When working in more than
one project, how are you going
to tell about the profitability of
each project?

Projects that costs more than it
earns means that you are
subsidizing a bad customer. In
other words, you are making
good profit from a project,
then losing that profit on
another project.

Without costing, how are you
going to calculate the
adequate motivation for
Achievements?
Billable and none-billable hours

You do not get money out of
all of your staff/activities.
Some gets money and
others’ don’t.

How are you going to…

pay for your accountant?

finance your marketing
campaigns

Your top management, i.e.
the human brain!

6% of body weight

20% consumption of resources Keywords…
(sugar & oxygen)
Billable
None-Billable
Software Industry… A time dependant industry

In a typical mass-
production commodity
manufacturer enterprise;
90% of the cost is NOT
time dependant.

In a typical software
company; things are
reciprocal.
The Editor Desk

For journalists, financial
auditors, lawyers, etc.,
there is always a non-
negotiable deadline (e.g.
8pm to deliver articles).

In software, we lack such
editor’s desk.
Dairy farms and Cheese factories

Software service providers are

like a dairy farm, they pay for
production cost even of there is
no projects.

Ready-made products
manufacturers can enjoy an
elongated period before
disposing milk on the river.

For the first group, Gaps
between projects can exhaust
all profits.
Keywords…

Even in ready-made product
case, Different tasks and their Gaps
internal dependability (Adam between
Smith) will result waste of Projects.
production time also. Redoing
How many days in a typical month,
and how many hours?

Professional working days per year

Regular Gregorian Year 365

minus actual

Weekends 104 261

National Holidays 13 248

Annual Vacation 30 218

Assume 10% of the
Training and HR Development 20 198 total available time
Assume the industry
Gaps between Projects 20 178 standard 10%

Number of billable days per month 15

Assuming 6 hours per

day (World record is
Number of working hours per month 89 6.75)
Who pays for the OFF-HOURS ?

In a monthly contract, the customers pays for
the week-ends and national holidays
(remember that in most cases you are the
customer).

In daily rate contracts, you pay for all off-

days.

In hourly rate contracts, you pay for all off-
hours.
Net Salary (take-home) and Gross
Salary (what company pays)
Social Percentage

Direct labor cost: Net Salary Insurance Payroll Tax Total of Increase

Take home salary $750 $279 $0 $1,029 137%

$1,000 $279 $0 $1,279 128%

Social Insurance
$1,500 $279 $100 $1,879 125%

Medical Insurance
$2,000 $279 $200 $2,479 124%

Payroll taxes $2,500 $279 $300 $3,079 123%

$3,000 $279 $400 $3,679 123%

$3,500 $279 $500 $4,279 122%

Do not forget…
$4,000 $279 $600 $4,879 122%
Medical Insurance
Bonuses $4,500 $279 $700 $5,479 122%

Correction factors $5,000 $279 $800 $6,079 122%

$5,500 $279 $900 $6,679 121%

$6,000 $279 $1,000 $7,279 121%

 At a glance…
Indirect Cost Factor that is
NOT LESS
THAN 1.9 and
Total Cost per Day up to 3.2
Total Cost per Hour

Place Net
Salary
Direct
Cost Min Max Min Average Max Min Average Max

Equipments
$750.0 $1,028.8 $1,543.2 $2,572.0 $104.0 $138.7 $173.4 $17.3 $23.1 $28.9

depreciation. $1,000.0 $1,278.8 $1,918.2 $3,197.0 $129.3 $172.4 $215.5 $21.6 $28.7 $35.9

Technical $1,500.0 $1,878.8 $2,818.2 $4,697.0 $190.0 $253.3 $316.7 $31.7 $42.2 $52.8

Coaching.
$2,000.0 $2,478.8 $3,718.2 $6,197.0 $250.7 $334.2 $417.8 $41.8 $55.7 $69.6

$2,500.0 $3,078.8 $4,618.2 $7,697.0 $311.3 $415.1 $518.9 $51.9 $69.2 $86.5

Supervision $3,000.0 $3,678.8 $5,518.2 $9,197.0 $372.0 $496.0 $620.0 $62.0 $82.7 $103.3

$3,500.0 $4,278.8 $6,418.2 $10,697.0 $432.7 $576.9 $721.1 $72.1 $96.2 $120.2

HRD $4,000.0 $4,878.8 $7,318.2 $12,197.0 $493.4 $657.8 $822.3 $82.2 $109.6 $137.0

Management $4,500.0 $5,478.8 $8,218.2 $13,697.0 $554.0 $738.7 $923.4 $92.3 $123.1 $153.9

$5,000.0 $6,078.8 $9,118.2 $15,197.0 $614.7 $819.6 $1,024.5 $102.5 $136.6 $170.8

$5,500.0 $6,678.8 $10,018.2 $16,697.0 $675.4 $900.5 $1,125.6 $112.6 $150.1 $187.6

$6,000.0 $7,278.8 $10,918.2 $18,197.0 $736.1 $981.4 $1,226.8 $122.7 $163.6 $204.5
Software Subsectors

Multi-Media

Application Development

Content Development

System level programming

Skilled personnel
deployment services

Technologies research and
development
Software Subsectors (continued)
Multi Media

Market price for each 10% Art work Designer

subsector differs. 20%

50%
Flash Developer

Percentage of contribution 20% Subject Matter

Expert

for each skill level varies. Project Manager

System Level Application Research &

Junior Junior Junior
Programming Developer/tes Development Developer/te Development Developer/tes
10% 5% 10% ter/support ster/support ter/support
10% 10% 5% 5%
Developer 15% 20% Developer Developer

20% 30% 20% 20% 30%

15% 20%
Senior Senior 20% Senior
20%
Developer Developer Developer
10%
Team Leader Team Leader Team Leader
 Multi-Media

Average Project Participation…

Art work Designer 50% $52.02 $208.89 $8.67 $34.81

Flash Developer 20% $25.86 $124.00 $4.31 $20.67
Subject Matter Expert 20% $50.13 $204.90 $8.36 $34.15
Project Manager 10% $37.20 $142.90 $6.20 $23.82
Overall Project Average cost EGP165 EGP681 EGP28 EGP113
EGP423 EGP70

Just for the sake of Statistics…

Daily cost in US$ 5.600 $29.50 $121.55 $4.92 $20.26
Daily Cost in Euro 8.008 € 20.63 € 85.00 € 3.44 € 14.17
Monthly Cost in EGP $2,450.70 $10,097.00
Monthly cost in US$ 5.600 $437.63 $1,803.04
Monthly Cost in Euro 8.008 € 306.03 € 1,260.86
 Application Development
Average Project Participation…

Junior Developer/tester/support 10% $12.93 $62.00 $2.16 $10.33

Developer 20% $50.13 $184.68 $8.36 $30.78
Senior Developer 20% $74.40 $245.35 $12.40 $40.89
Team Leader 10% $55.40 $153.01 $9.23 $25.50
Designer 20% $147.21 $366.70 $24.54 $61.12
Analyst 15% $128.61 $305.36 $21.44 $50.89
Project Manager 5% $48.94 $101.79 $8.16 $16.96
Overall Project Average cost 100% EGP518 EGP1,419 EGP86 EGP236
EGP968 EGP161

Just for the sake of Statistics…

Daily cost in US$ 5.600 $92.43 $253.37 $15.41 $42.23
Daily Cost in Euro 8.008 € 64.64 € 177.19 € 10.77 € 29.53
Monthly Cost in EGP $7,678.20 $21,047.00
Monthly cost in US$ 5.600 $1,371.11 $3,758.39
Monthly Cost in Euro 8.008 € 958.82 € 2,628.25
 System Level Programming

Average Project Participation…

Junior Developer/tester/support 5% $6.47 $31.00 $1.08 $5.17

Developer 10% $25.07 $92.34 $4.18 $15.39
Senior Developer 30% $111.60 $368.03 $18.60 $61.34
Team Leader 15% $83.11 $229.52 $13.85 $38.25
Designer 20% $110.81 $366.70 $18.47 $61.12
Analyst 10% $55.40 $203.58 $9.23 $33.93
Project Manager 10% $61.47 $203.58 $10.25 $33.93
Overall Project Average cost 100% EGP454 EGP1,495 EGP76 EGP249
EGP974 EGP162

Just for the sake of Statistics…

Daily cost in US$ 5.600 $81.06 $266.92 $13.51 $44.49
Daily Cost in Euro 8.008 € 56.68 € 186.66 € 9.45 € 31.11
Monthly Cost in EGP $6,733.20 $22,172.00
Monthly cost in US$ 5.600 $1,202.36 $3,959.29
Monthly Cost in Euro 8.008 € 840.81 € 2,768.73
 Research and Development

Average Project Participation…

Junior Developer/tester/support 0% $0.00 $0.00 $0.00 $0.00

Developer 5% $12.53 $46.17 $2.09 $7.69
Senior Developer 30% $111.60 $368.03 $18.60 $61.34
Team Leader 20% $110.81 $306.03 $18.47 $51.00
Designer 20% $110.81 $366.70 $18.47 $61.12
Analyst / Subject Matter Expert 20% $110.81 $407.15 $18.47 $67.86
Project Manager 5% $30.74 $101.79 $5.12 $16.96
Overall Project Average cost 100% EGP487 EGP1,596 EGP81 EGP266
EGP1,042 EGP174

Just for the sake of Statistics…

Daily cost in US$ 5.600 $87.02 $284.98 $14.50 $47.50
Daily Cost in Euro 8.008 € 60.85 € 199.28 € 10.14 € 33.21
Monthly Cost in EGP $7,228.20 $23,672.00
Monthly cost in US$ 5.600 $1,290.75 $4,227.14
Monthly Cost in Euro 8.008 € 902.62 € 2,956.04
What is next?

Contributing in the task force that is to work on…

Coming up with the final version of the questionnaire.

Evangelizing the concept to all members and inviting
them to participate.

Collects the data and apply the statistical methods.

Publishing the results.

Thank you