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5 steps to prepare your project budget - Project - Microsoft Office Page 1

Support / Project / Project 2003 Help and How-to / Managing Costs

5 steps to prepare your project budget

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Microsoft Office Project 2003

How much will this project cost? Are we on budget? How much have we spent on material
resources versus labor resources? You can accurately answer such questions by learning
more about how Project handles cost data. Then you are ready to set up your project
budget in five easy steps.

Understand project costs


Work on a project is done by work resources and often requires specific
material resources that are costed against the project. There are three basic cost types in
Project:

Resource rates The cost of a work resource based on the amount of time that the
resource spends working on the project. Rate-based material costs are the costs
of consumable material resources, such as building materials or supplies, to
which you have assigned standard rates.

Fixed costs One total cost that represents the price for doing a task or project,
regardless of the number of resources assigned, the number of hours worked , or
the amount of materials used.

Per-use costs The single amount that it costs each time you use a resource.

You can use Project to create cost estimates and to track actual costs — and even to
compare actual costs against your original baseline budget. Generally, to do even initial
cost estimates, you need to enter cost information and assign resources to tasks in the
project. There are two distinct ways to track costs :

Have Project automatically calculate costs for you. This requires you to use
resource rate-based costs or per -use costs, assign resources to tasks , and track

progress on those tasks .

Use fixed costs . This requires you to enter fixed costs per task .

Often , you will use a combination of these cost-tracking strategies in your project . In most
cases, the cost is determined by the pay rates for resources or the cost of materials , so
you'll want to use resource rates to track most costs. However, if a vendor gives you a
fixed cost to do a task, then you will want to assign a fixed cost to that task .

Lastly, you can track costs at several levels. For instance, if you are interested only in
rough estimates, you can enter costs at the summary task level. If you want a more
accurate picture, you can enter and track costs at the subtask level. Each summary task
will still show the cumulative costs for its subtasks.

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Use the following table to help you decide how to enter and track costs.

IF A TASK'S AND YOU WANT APPROXIMATE OR YOU WANT


COST IS COSTS, DO THIS: DETAILED COSTS, DO
BASED ON: THIS:
Hours worked or 1. Specify rates for all work 1. Specify rates for all
amount of material
used resources and material resources/materials.

resources.
2. Assign resources to

2. Assign resources to tasks. tasks.

3. Track hours worked or percent 3. Track hours worked.


complete.

A set fee for a task 1. Specify fees for tasks . 1. Specify fees for
tasks.
2. Assign resources to tasks only
if you have tracking needs 2. Assign resources to
beyond cost tracking. tasks.

3. Track hours worked


or percent complete.

A set fee for use 1. Specify per-use costs for 1. Specify per-use
of a resource
resources. costs for resources.

2. Assign resources to summary 2. Assign resources to


tasks or subtasks. tasks.

3. Track hours worked or percent 3. Track hours worked


complete. or percent complete.

To learn more about tracking progress, see the related links in the See Also box, which is
visible when you are connected to the Internet.

Step 1: Set pay rates


For the tasks for which you want the cost to be based on the hours that the resources work
on them, Project bases the cost on the standard rate that is applied to each assigned
resource. For each resource in your project or resource pool, you need to specify a
standard pay rate. You can also assign a separate overtime rate in %000you want to
account for overtime hours on a task.

When projecting costs , Project simply multiplies the standard rate of the assigned
resource by how many hours (or minutes, days, weeks, months, or years ) that the
resource has been assigned to a task . For example , if a programmer costs $100 per hour
and is assigned to work 10 hours on one task , the cost would be $1 ,000 . As you enter
information about the actual progress on a task (the hours worked on it or the percentage
that has been completed, for example), Project multiplies the amount of time spent
working on the task by the assigned resource's standard rate to determine the actual costs
of the task to date. If you use an overtime rate as well, Project applies the overtime rate as
needed to properly calculate the total cost of the task .

Material resources work similarly. You enter the names of material resources and specify a
standard rate that can be applied to the number of material units that you assign to a task .
For example , computer software may have a standard rate of $ 100 per license. If you
assign 10 licenses (units ) to a task, the cost is calculated as $ 1,000.

To set the standard and/or overtime rates for a work resource

To set the rate for a material resource

TIP If you don' t have specific resources to assign or you just want to see general costs,
you can use generic resources instead of specific individuals . For example, instead of
assigning Ken Myer and Jenny Lysaker, you can type the resource name Programmers
in the Resource Name field. Then, in the Max. Units field , specify the number of

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resources that you have available as a percentage , where 1 person equals 100 percent .
So, if you have three programmers available, type 300%. Later, when you want to assign
a specific number of programmers to a task , you can select the "Programmers" resource
and then specify, as a percentage, the number to assign.

Step 2: Enter per-use costs


Per -use costs act as a lump sum cost for the resource, so that every time you assign the
resource to a task , this lump sum or per -use cost is applied . You can combine per-use
costs and standard rates. For example , if you have a large setup cost for a piece of
equipment and you also pay for it by the hour afterward, you can enter both the per-use
cost and the standard rate for the piece of equipment . The per -use cost value is added to
the total cost for the resource on any given task , along with the hourly rate.

To set the per -use cost

Each time the "Validation Lab" resource is assigned to a task , $500 is added to the cost
of that task , regardless of the hours or duration associated with it.

Step 3: Enter fixed costs


Fixed costs allow you to assign costs at the task level, summary task level, or even the
project level. You don 't have to assign resources to see the cost calculations for fixed
costs . This is a great option if you don' t plan to assign resources in the Project plan, but
you do want to estimate the project' s costs .

To add a fixed cost

TIP To remove a fixed cost, type 0 in the Fixed Cost field .

Step 4: Set task types


Task types are a critical element of how Project schedules tasks. However, before we
discuss task types, here is some starter information on the general scheduling rules in
Project as they apply to costs . For rate-based costs , Project bases its calculations on the
amount of work done on tasks . That is, the cost is determined by multiplying the hours of
work done by the hourly rate for the assigned resources. Thus, work is an important factor
in cost calculations.

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To calculate the hours of work, Project uses this three-variable formula: Work = Duration ×
Units. This formula is called the scheduling formula and is sometimes represented in
different ways, such as: Duration = Work ÷ Units. Remember, work is the number of hours
of effort needed to complete a task ; duration is the actual amount of time that will pass
before the task is completed ; and units are the percentage of a resource that is allocated
to work on the task. For example, 50 percent of a one- person resource means that half of
the resource's working time is being spent on the task.

By default, work is effort -driven, and units default to 100 percent. The scheduling effect is
that if you enter a task and a duration, and then you assign resources, Project determines
the number of person-hours required to complete the task by multiplying the duration that
you specified by the units assigned to the task. For example , if you assign one person (a
work resource) to a task that has a 10-day duration, Project does this calculation: Work =
10 days (duration) × 100 % (units) = 10 days ( or 80 hours of work). On the other hand, if
you initially assign two people to that 10- day task , Project calculates the duration as
follows: Work = 10 days (duration) × 200 % (2 people assigned full-time ) = 20 days (or
160 hours of work).

NOTE These calculations assume an eight-hour work day, which is the default in
Project. To change work day values , see the related links in the See Also box, which is
visible if you are connected to the Internet.

What happens if you assign more resources after the initial resource assignment ? Let's
say that you currently have a task that will take 10 days for one person to do, meaning
that it requires 80 hours of work. Using the default settings in Project, if you assign a
second person to the task full-time , Project recalculates the duration by using the same
formula : Duration = Work ÷ Units. (Remember your algebra ?) So, Duration = 80 hours
(work ) / 200% (units) = 40 hours or 1 week.

Sometimes , you want the calculations for a task to behave differently. For example , if you
have to transport equipment and you know that it always takes a full day to get to the
destination, you don' t want the duration of the "Transport Equipment" task to ever change.
However, you may need to assign more than one person to transport the equipment, and
you want their work hours properly calculated so that you can get the correct costs for
those employees.

Each task' s task type determines which element of the scheduling formula changes when
another element is changed. By selecting the appropriate task type , you can fix one of
these variables so that when you enter or change the second variable, Project recalculates
the third variable automatically (and, of course, you can change any of the three variables
yourself) . The following table will help you determine which task type to use.

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IF YOU WANT TO: FIRST, SET AND PROJECT WILL :


THE TASK
TYPE TO:
Set the percentage of time that your Fixed units Adjust the duration as you :
resources work on the task and have
Project calculate the duration ( this is the Assign additional
default behavior in Project ) resources.

Change the work


estimate.

Change the units


(percentage of a
resource's time being
spent on the task) .

Estimate the person- hours and have Fixed work Adjust the duration as you :
Project calculate the duration
Assign additional
resources.

Change the work


estimate.

Change the units


(percentage of a
resource's time being
spent on the task) .

Set a fixed duration for the task and Fixed Adjust the work estimate as you :
have Project calculate the percentage of duration
time that resources must work on the Assign additional
task to complete it within that duration resources.

Change the task's


duration .

Change the units


(percentage of a
resource's time being
spent on the task) .

To change the task type

Step 5: Assign resources


The last step to creating your project budget is to assign resources to the project and to
tasks .

To add resources to your project by using the Resource Sheet

After you add the resources to the project, you can begin to assign resources to tasks .

To assign resources by using the Resource Name field

To assign resources by using the Task Form

To use resources by using the Assign Resources dialog box

Some ways to assign resources to tasks include selecting resource names from the
Resource Name field or in the Task Form.

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Another way to assign resources is to display the Assign Resources dialog box.

NOTES

You can select multiple resources and multiple tasks at the same time by holding
down CTRL while you click to select them. This allows you to create multiple
assignments at one time . You can assign many resources to many tasks , many

resources to one task , or one resource to many tasks .

Assign resources to the detail tasks , not summary tasks . This helps to build and
maintain a more effective and manageable plan .

If your task type is Fixed Units and you are using effort-driven scheduling, the
duration of the task will shorten as you assign more resources. If you change the
task type to Fixed Duration, the duration will remain fixed , and work or units will
change.

Next Step
At this point, you have entered all of the cost information necessary to create your Project
budget. Now , you're ready to review the cost totals, optimize the budget, and distribute it.

© 2010 Microsoft Corporation. All rights reserved .

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