how to apply the fixed and variable costs on the WBS to estimate the profit?

Question

I have been asked to estimate the profit that could be achieved for a portfolio for IT training courses. I have to estimate the income and the fixed and variable costs and hence the profit.

I made the top level WBS for this project but I don't know how to apply the fixed and variable costs on the WBS to estimate the profit.

Answer 1

Something like this:

Work package         Type       Amount Units   Cost   Total
------------------------------------------------------------
Room space           Variable   5      Hours   ?      ? (5 hours)
Trainer              Fixed      5      Hours   $150   $750
Brochures            Fixed      50     Item    $5     $250
Project manager      Variable   15     Hours   ?      ? (12 hours)
....

Variable cost can't be directly related to this particular project, and are normally out of your control. In this example you just don't know what is the price of one hour of your (the PM) work. Even if you know your salary that's not everything the cost includes.

Fixed cost can be directly related to this project. If the project is not approved - none of these costs will happen.

You should come up to your project sponsor with the following summary document:

Fixed cost       
  $1000
Variable cost 
  5 hours of room space
  12 hours of my time
Income
  $3000 = 20 tickets to be sold $150 each
Gross profit
  $2000
Net profit
  ?

The management will calculate the net profit using the information they have about the cost of indirect expenses (variable). And they will decide whether to approve this project or not.

Answer 2

You do not apply fixed and variable costs to the WBS. The WBS and its work packages contain project costs, both labor and material. Your business case analysis resides outside of the WBS. I am assuming from your question that the project cost is your revenue, i.e. you are a supplier. I also assume that your contract does not stipulate a separate fee; thus, your contract cost value and your total contract value are equal.

If these are true, then your labor rate that you used to calculate your TCV must include a margin for G&A, OH, and other direct costs. If my last assumption is correct, then the labor rate must also include a margin for fee.

Your TCV is your top line or your revenue. From here, you need to pull in the appropriate amount of allocated costs to calculate your gross and net profit. You need to assume that the margins that burdened your labor rates -- G&A, OH, etc. are the appropriate allocations.