Glossary for Project Costing - Login



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Project Costing in Unanet Version 9.3

Instructional Guide

Version 1.7

Table of Contents

Overview of this document 3

Why is project costing important? 3

Direct and Indirect Costs and Calculation of Pool Rates 4

Unanet support for direct and indirect cost reporting 6

Project Costing Setup 7

Setup Cost Structure 8

Setup Cost Report 10

Project and Person Setup 12

Project Cost Reporting 13

Glossary for Project Costing 20

Frequently Asked Questions 22

Alternate Cost Structure Examples: 24

Overview of this document

Project Costing in Unanet Version 9.3 enables users to report on the fully burdened costs associated with their projects. These burdened costs are calculated in real-time within Unanet using the indirect pool rates provided by an external accounting system or other outside application. This document first describes why organizations need to track and report on direct and indirect project costs, and how Unanet supports these concepts. A detailed Glossary is included at the end of this document as well as different examples of cost structures.

Why is project costing important?

Many services organizations need to see the true project costs, taking into account allocation of costs from overhead activities and other costs not specifically identifiable with a single project. This is especially true for government organizations working on cost plus type projects, but time & materials and firm fixed price projects sometime require separate reporting of these costs too.

Key customers have identified the following benefits of project costing in Unanet:

• Provide project managers with the tools they need to report on fully burdened costs (direct and indirect) in real time, so that actuals can be compared with budget and funded amounts.

o The ability to generate reports in real-time will drive more timely data capture and thus improve DCAA compliance. Without this functionality, project managers have to wait for reports from their accounting system which may be weeks or even months late.

o It provides additional leverage for training the project/program managers and pushing accountability to them.

o Report formats and usage are familiar and easier to use for project staff than accounting system

• Forward visibility of under or over performance is particularly key for fixed price contracts to see costs versus billings as funded amount, and contract end, is approached.

o A real-time future view of project spend as resource loading and project plans change will be valuable.

o This functionality allows Unanet to be used for project estimating and pricing on government contracts, avoiding the need for third party tools.

o Plans and budgets are integrated with detailed actual costs in one system.

• Deliver project costing information outside the finance department

o By providing improved information to program management, faster resolution of potential problems will be achieved. As with other Unanet reports all information is presented based on real-time data.

o Accounting will not have the burden of producing Job Summary Reports (JSR) and other project costing information for managers, saving time or avoiding the need for project managers to have access to the accounting system

• System specific:

o Accounting systems typically used by smaller government contractors do not provide Project Costing Reports. Using Unanet to provide this capability removes a driver for them to go through a complex and costly migration from their existing accounting system.

o Three sets of indirect cost rates are supported; Target, Provisional and Actual, providing additional reporting options and planning flexibility compared with many accounting systems which only offer two rates. Note: Unanet does not calculate the rates but uses calculated rates from other systems.

o There is no limit on the number of cost structures or indirect cost elements. Some systems have limitations such as only seven pools, and the inability to accurately calculate rates from multiple cost structures.

o Unanet allows a descriptive label to be specified as well as an account number for a cost element. This improves ease of use over systems that assume that the user understands that 39 means Direct Labor, 51 means Subcontractor etc.

Direct and Indirect Costs and Calculation of Pool Rates

Any cost that can be specifically identified with a project is known as a direct cost, for example hourly salary cost, or Other Direct Costs such as travel or materials. However the performing organization incurs other costs which cannot be tied directly to a single project and these costs need to be grouped so that they can be distributed appropriately across each project. These are known as indirect costs. Examples of indirect costs are:

• fringe benefits,

• overhead, and

• general and administrative (G&A)

These indirect costs for the whole organization will be grouped in similar cost pools, and their total calculated. A base is needed for distributing indirect costs to their final cost objectives and this is known as an allocation base. Dependent on the type of indirect cost, different allocation bases might be used. Fringe would typically be allocated based on total labor cost (including direct project and all other non-project work), for example.

For example, if the total fringe pool costs were $1,100,000, and the allocation base of total labor costs for the organization was $3,200,000, then the Fringe Rate would be 34% (Fringe/Base). This percentage would be multiplied by the project’s labor casts to calculate the fringe burden for that project.

Fringe benefits typically include:

• Employer federal, state and local payroll taxes

• Workers compensation

• Holidays, vacations and sick or lost time

• Jury duty, military or bereavement

• Medical, dental and vision

• Life insurance

• Short and long-term disability

• Stock incentive options

• Company contributions to 401(k)

• Bonuses (if applicable to all employees)

Expenses, known as Overhead, associated with assisting direct labor employees in doing their jobs, typically include the following items:

• Communications/telephone

• Training

• Recruiting

• Travel expenses (unless allocated to the project as ODC)

• Utilities

• Depreciation of buildings and equipment

• Licenses and fees

• Computer equipment and maintenance

• Office supplies

• Postage and shipping

Note: The allocation base for Overheard will typically be the total labor and fringe costs.

General & Administrative expenses (G&A) typically include:

• Executive management

• Finance and Administration

• Sales and marketing

• Human resources

• Information technology

• Professional fees

• Bid & proposal efforts

Note: the commonly accepted base for allocating G&A expenses is total costs, including direct costs (labor and ODC), fringe, and overhead.

Other indirect pools may be established dependent on the organization’s accounting system. However, the organization should already fully understand these concepts and their desired cost structures before attempting to configure Unanet. If not, they should work with their auditors or other financial consultant to establish their policies and procedures.

For reference, a typical indirect cost structure and associated rates for government contractors are shown below.

35% Fringe – calculated as Rate x Labor

60% Overhead – calculated as Rate x (Labor + Fringe)

14% General & Administrative – calculated as Rate x (Labor + Fringe + Overhead + ODC)

Organizations that have many staff working on client site would typically have lower overhead.

Unanet support for direct and indirect cost reporting

In order to enable total cost reporting:

• Fiscal Years, Cost Elements (Labor and Other Direct Costs (ODC)) and Cost Structures must be established. This will be entered by a Unanet Administrator

• Projects must be associated with cost structures. Project’s cost structure defines the ODC tracked for the project. Other information entered against the Project include Billing Type, Fee and various budgeted amounts for comparison with actuals.

• Define which labor charges should be tracked for the project. Default Labor Cost elements can be entered for each person and/or overridden on the assignments that govern the person’s work on the project.

The completion of these steps ensures that all incurred and projected direct project costs can be tracked correctly. Detail reports included with the Project Costing module will show the project’s direct cost distribution by cost elements. Note: Unanet does not calculate the rates but uses calculated rates from other systems.

Project Costing Setup

1. First, a Unanet Administrator defines Cost Elements. Three types are specified; Labor, Other Direct Costs and Indirect Costs

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2. Fiscal Year definitions must be established. They will be used to set up Indirect Cost rates. Rates apply for a whole Fiscal Year and so these are used on the reports where Indirect Costs are calculated. Accounting calendars can additionally be specified to reflect ‘accounting months’ or other periods rather than calendar months, and these accounting periods can be used in reporting throughout the system.

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Setup Cost Structure

1. Cost Structures must have a unique name and optionally may have a description.

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2. You can assign Labor Cost Elements to your Cost Structure.

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3. You can associate Expense Types with ODC Cost Elements in your Cost Structure. Note: Expenses entered before this association was created will not automatically appear on Project Costing reports. If there are historic actual expenses you wish to include in project costing reports, contact Unanet Support for a script which will update your historic expense actuals with the ODC-Expense Type mapping.

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4. You can establish the rules (or formulas) for calculating Indirect Costs for you structure. A typical, simple example is shown below for Fringe, Overhead and G&A.

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5. You can enter Indirect Cost rates for your structure and specify when the Actual Rates were last calculated. This date is shown on report headers when Actual Rates are used so that it is clear if the rates are current, as Actual Rates may change significantly over the Financial Year.

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Setup Cost Report

1. You can now define a Project Cost Summary report layout. Note the Actual and Budget Formulas which can be created. The Budget Formulae uses the fields on the Project Profile tab.

Note also that labels for each report item can be specified. Certain reports use these labels as column headers and to ensure the report is not too wide to fit on the screen it may help to use abbreviated or multiple words in the report item label to allow wrapping rather than a single word, i.e. ‘Sub Contractor’ rather than ‘Subcontractor’.

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2. You can optionally, create one or more Fee Calculation methods. This allows fee to be added to cost on the report format to give total project revenue. Fee can be defined based on different approaches such as: Total Labor and ODC Cost, or another method could just use Total Labor cost. One of these fee calculation methods can be specified for each project on the Project Profile tab along with the associated fee. It is also possible to calculate a Budget fee for comparison based on fields held on the Project Profile tab, as in the example below. An appropriate example fee to use on Cost Plus contracts is 5 or 7%. Revenue can then be calculated as the sum of total cost plus fee.

3. With Unanet Version 9.3, calculations can be performed based on cost, bill or hour values for labor cost elements, cost or bill values for ODC elements, and cost values for pools. This allows T&M revenue to also be calculated. As a single report format is used for both Cost Plus and T&M projects (as it allows projects to be compared on a number of Project Costing reports), a T&M “fee method” should be defined as the sum of billable labor and ODCs minus the burdened project costs. T&M projects can select this method on the project profile. Then the same revenue formula can be employed, fee computed plus total costs, for both Cost Plus and Time & Materials projects.

4. The availability of labor hours in report calculations means an actuals fee method based on hours worked, for example $6 for every hour, can be defined and used to calculate fee. Hours could also be included in the report as a line item if desired.

Project and Person Setup

Each person now has a default Cost Structure and Labor Cost Element which is entered on their Rates tab. This can be overwritten on Assignment.

On the Project Profile tab new fields Billing Type (with preset values of TM, CP and FP), Cost Structure can also be specified. On the Budget tab there are values for Total Value, Funded Value, Fee, Fee Calculation Method, Burdened Labor Cost and Burdened Expense Cost can be entered. These fields would hold budgeted values over the life of the project, and are used in various reports. They can also be selected in the Cost Report setup for comparison with actuals. The intended usage of the fields is as follows:

• Total Value: Anticipated maximum value of contract, may equal Funded Value.

• Funded Value: Authorized expenditure; may equal to project budgeted revenue (calculated as sum of Labor and Expense Bill Budget values).

• Fee Calculation Method: Selected from the items defined on the Cost Report > Fee Calculation Method tab.

• Fee: Percentage to be added to project cost to calculate revenue.

• Burdened Labor Cost: total labor costs including burdens (e.g. Fringe, Overhead and G&A)

• Burdened Expense Cost: total ODC costs including burdens (e.g. G&A)

Project Cost Reporting

Eight new reports are provided on the reports menu.

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The Labor Cost Details and ODC details reports are available via the Reports menu and also via drilldown from the Project Cost Summary (JSR). Note JSR is an acronym for Job Summary Report, a commonly used name for that report format in popular accounting systems.

The purpose of each report is as follows:

1. Labor Cost Details – show actual hours, direct labor costs, labor category and person by labor cost element for the same time periods as the Project Cost Report. Average labor rate per cost element is also shown. If the Unanet Project Portfolio product is used, Labor Detail actuals can be compared with Assignments or Plans.

2. ODC Details – show actual costs for each expense type by ODC element for the same time periods as the Project Cost Report. If the Unanet Project Portfolio product is used, ODC Detail actuals can be compared with Budgets or Plans.

3. Indirect Cost Rates - a report view of the data entered in the Cost Structure > Indirect Cost Rates tab.

4. Cost Summary – a periodic report (user can select week, month or quarter periods) showing costs for a project by cost element. Plans or budgets can be included for labor, and expense. The vertical ordering of the report output will match the layout defined in Admin > Setup > Cost Report, with those elements not used in the cost structures of interest not displayed.

5. Cost Summary and Status – extending the Cost Summary report to include actuals and plans or budgets for prior and future periods. Totals are calculated with budgets for the project. Backlog is shown on the report calculated as the difference between the project budget amounts and the actuals. The Unallocated Budget is calculated as the difference between the project budget amounts and sum of the actuals and people and expense plans or budgets.

6. Project Cost Summary by element – providing one line per project, showing cost element details for a project. The horizontal ordering of the Project Summary by Cost Element report output will also match the layout defined in Admin > Setup > Cost Report. Cost Element details can be hidden via the selection screen, providing a report that displays only totals. Additionally, users can choose to Sort by Project or Sort by Billing Type (within Owning Org).

7. Project Revenue and Funding Summary – providing one line per project, shows date range, billing type and actuals for the user-specified current period, fiscal-year-to-date, and prior years. This total is compared with:

• Budgeted Revenue (as specified in the Cost Report definition)

• Backlog (calculated as Budget – Actuals),

• Funded Value (from Project Profile tab), and

• Remaining Funded (calculated as Funded minus Actuals to Date)

Additionally, users can choose to Sort by Project or Sort by Billing Type (within Owning Org).

8. Project Cost Summary (JSR) - the vertical ordering of the Project Cost Summary (JSR) report output will match the layout defined in Admin > Setup > Cost Report, with those elements not used in the cost structures of interest not displayed. As with the Labor Cost Details, ODC Details and the other Summary reports, four periods are shown with actuals;

• Current Period as specified by the user.

• Fiscal Year to Date

• Prior Fiscal Years

• Total (BoT to ToDate)

Budgeted, % of Budget Incurred and Backlog (Budgeted minus total Actuals ToDate) are also shown.

The users may click on the detail links on the Project Cost Summary (JSR) report output (shown below) to see the related labor and ODC details. If the Unanet Project Portfolio product is used, Labor Detail and ODC actuals can be compared with Budgets or Plans.

In addition to the standard selection criteria options Project Costing Periodic and Summary reports allow you to select the indirect cost rate type (Target, Provisional or Actual) to be used for reporting, and filter projects by Owning Organization.

The selection screen for the Project Cost Report is shown below.

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Examples of each report follow.

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Glossary for Project Costing

|Item |Description |

|Actual Indirect Cost Rate |Computed by dividing the total amount of the cost pool by the total amount of the direct cost |

| |element(s). Example would be dividing the total dollars spent on fringe benefits by the total |

| |payroll dollars of the people receiving the benefits. The actual rate is dynamic and changes |

| |with each period as costs are incurred and recorded in the General Ledger. This rate is computed |

| |in the accounting system and keyed into Unanet as required. Unanet allows the effective date for |

| |the Actual Rate calculation to be stored so that reports can show how current the rate is. |

|Backlog |Budget minus total Incurred to date |

|Billing Type |TM, FP, CP Values: New field in Project Record – Note: Bill Type is only at the Unanet Project |

| |Level. Tasks do not have different billing types |

|Cost Element |Elements comprising the total cost of a project. Elements can be direct cost elements and |

| |indirect cost elements. Examples are Direct Labor and Fringe. |

|Cost Pool |Groupings of indirect costs to be allocated to a direct cost element. Examples: Fringe, |

| |Overhead, and G&A. Contains the cost pool name and the actual, provisional and target rates. Cost|

| |Pool rates are calculated by the total dollar amount of the indirect cost divided by the total |

| |dollar amount of the cost element. |

|Cost Structure |A group of cost pools and how those cost pools are allocated to direct costs. Cost structures |

| |can include multiple cost pools. Example: Company A multiplies the total amount of direct labor|

| |by the fringe rate. |

|Actuals or Budget Formula |A formula created by the user that defines the calculation steps involved in computing the |

| |desired end total or amount for a cost element. |

|Direct Cost Elements |Labor hours at hourly cost rates and expense amounts for materials and other purchases charged to|

| |a project. |

|Effective Date |The date the change is effective. This date is used to determine which historical file to use |

| |when making calculations. This is not required. Only an Administrator will change Actual Rates? |

|Project Total Value |Maximum contract value; may exceed Funded Value |

|Fringe Pool |This is a grouping of expenses incurred for the benefits of employees, both direct and indirect. |

| |These may be different for different categories of employees such as full-time or part-time. |

| |Items which typically would be included in Fringe are: |

| |Employer federal, state and local payroll taxes |

| |Workers compensation |

| |Holidays, vacations and sick or lost time |

| |Jury duty, military or bereavement |

| |Medical, dental and vision |

| |Life insurance |

| |Short and long-term disability |

| |Stock incentive options |

| |Company contributions to 401(k) |

| |Bonuses (if applicable to all employees) |

|Funded Value |Authorized expenditure, equal to project budgeted revenue. |

|Indirect Cost Elements |Indirect cost allocated from a grouping of incurred costs in a pool identified with two or more |

| |objectives (such as Fringe, Overhead or Sales & General Administrative costs) and apportioned to |

| |the some grouping of other cost elements, both direct and indirect. |

|Indirect Cost Rate |A percentage to be applied to the dollar amount of the direct costs. Percentages can be |

| |provisional, target and actual. |

|Labor Cost Elements |Subcategory of cost elements that includes all labor costs that are direct. Direct labor costs |

| |are expressed as a rate per hour. |

|Other Direct Cost Elements |Subcategory of cost elements that includes all costs other than labor that are direct, such as |

| |expenses. Often, these are termed ODC’s. |

|Overhead Pool |This is a grouping of expenses associated with assisting direct labor employees in doing their |

| |jobs. Items which would typically be included in Overhead are: |

| |Communications/telephone |

| |Training |

| |Recruiting |

| |Travel expenses (unless ODC) |

| |Utilities |

| |Depreciation of buildings and equipment |

| |Licenses and fees |

| |Computer equipment and maintenance |

| |Office supplies |

| |Postage and shipping |

| | |

| |For direct labor on client site, overhead will be lower than on company site. |

|Owning Organization * |Unanet Organization: New field in Project Record. This component allows the user to define |

| |groupings of projects or people and define separate cost structures for each owning organization.|

|Person Organization |Each person in Unanet is identified as belonging to an organization which is the person’s |

| |organization. |

|Project Organization |Each project in Unanet is associated with an organization which is the project organization. |

| |Project organizations are designed to represent customers and, specifically, the organization |

| |that benefits from the project. |

|Provisional Indirect Cost Rate |The rate determined by budgets or forward pricing and approved by audit of an outside firm or |

| |agency. This rate is static and only changes with authorization from the outside firm or agency.|

| |This rate is normally used in proposals and in billing for Cost Type contracts. This rate is |

| |keyed in. |

|General & Administrative Pool |This is a grouping of expenses associated with general administration and overall management of |

| |the business. Typically abbreviated to G&A, but sometimes known as SG&A (Sales, general & |

| |administrative). Items which would typically be included in G&A are: |

| |Executive management |

| |Finance and Administration |

| |Sales and marketing |

| |Human resources |

| |Information technology |

| |Professional fees |

| |Bid & proposal efforts |

| | |

|Target Indirect Cost Rate |The rate determined by the company as a goal rate based on budgets. This rate may be the same as|

| |the provisional rate and is usually a static rate not changing but once or twice a year. This |

| |rate is keyed. Note, some accounting systems such as GCS support only two rates (Target and |

| |Actual). In such situations Target has the same meaning as Provisional defined above. |

Frequently Asked Questions

Q: Why doesn’t Unanet calculate pool rates?

A: Calculating pool rates requires inclusion of all cost information typically only found in an accounting system, including payroll and benefits costs, office administration costs, rent, depreciation etc. If the accounting system does not have functionality for calculating pool rates, it is not complex to do this in a spreadsheet. The key effort is the management decision on which costs belong in which pool. Target Rates, if used, may be valid for multiple years, Provisional Rates typically are valid for an entire year, and Actuals are recalculated periodically, perhaps quarterly or monthly. Unanet may provide this functionality in the future.

Q: Does Unanet Project Costing replace my accounting system?

A: No, but it may eliminate a driver to upgrade your accounting system to obtain fully burdened project cost reporting which Unanet now offers.

Q: How can fixed price projects be supported?

A: CFOs working for current customers advise us that they run their projects like a Cost Plus, with an estimated fee in order to determine profitability.

Q: How can T & M projects be supported?

A: Revenue for T&M can be computed using the Labor Bill and ODC Bill values. A single JSR can include revenue for both Cost Plus and Time & Materials projects, by defining appropriate fee methods for the Cost Plus projects, and also defining a fee method for T&M equal to billable labor and ODC minus total project cost. Revenue, for both CP and T&M projects is then simply the sum of total cost and the Fee Computed.

Q: What roles are required to set up cost structures and run the reports?

A: Admin role is required to set up cost structure data. Project Managers without Cost Rate Manager role can run the reports with the exception of the Labor Details Report which shows cost rates for individuals.

Q: Which Unanet license is required to use this functionality?

A: The new functionality is only available to customers with either the Project Tracking or Project Portfolio licenses, i.e. Expense functionality is required and an equal number of time & expense licenses. With Project Portfolio comparison with plans and assignments and periodic reporting is included.

Q: Can I plan and forecast ODCs?

A: Yes, in Unanet 9.1 we added the ability to plan and budget expenses by type. These are used, much like labor plans and assignments to forecast future costs with associated burdens. The Unanet Project Portfolio license is required for this capability.

Alternate Cost Structure Examples:

This document has used a simple, but typical example cost structure for a services organization. Other examples are provided here:

(1) Two Overheads and G&A

Labor Cost Elements:

CONUS Labor (CONtinental US)

OCONUS Labor (Outside CONtinental US)

Indirect Cost Elements:

CONUS Overhead (includes Fringe)

OCONUS Overhead (includes Fringe)

G&A

(2) Fringe, Two Overheads and G&A

Labor Cost Elements:

Direct Labor - Company Site

Direct Labor - Client Site

Indirect Cost Elements:

Fringe

Overhead Company Site

Overhead Client Site (recognizing that employees located at client site have lower overhead costs)

G&A

(3) Fringe, Overhead, Subcontract/Material Handling Overhead, and G&A

For situations where contracts are material intensive:

Labor Cost Elements:

Direct Labor

Indirect Cost Elements:

Fringe

Overhead

Subcontract Material Handling Overhead

G&A

(4) Fringe, Two Overheads, Subcontract/Material Handling Overhead, and G&A

For situations where contracts are material intensive:

Labor Cost Elements:

Direct Labor - Company Site

Direct Labor - Client Site

Indirect Cost Elements:

Fringe

Overhead Company Site

Overhead Client Site

Subcontract/Material Handling Overhead

G&A

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