Should a project Manager include his own cost when costing a project? I have included the cost of resources I have hired to work on the project, but should I include my own cost to the business in the resource costs?
9 Answers
Should a project Manager include his own cost when costing a project?
The cost of project management is in the project of course, but as far as I can tell the project costs are rarely decided by project managers; the customer decides how much he is willing to pay for a certain project. Then executives calculate a bit and end up with a budget for the project. Of course, a project manager can help them making the decision based on his experience, but being involved in the decision making process is rare.
However, the project manager costs sound like a cover budget for me: it can cover a lot of things, which is not transparent, and eventually will lead to unpleasant discussions. I suggest to be more specific on this when you put this information into a plan. For example, you might not be able to use project hours for traveling, visiting the customer etc.
I know companies, where executives calculate 10% of management cost per team member, so if you have a team with 5 people, then you, as a project manager, can spend 50% of your time with the project.
If you are looking for a different way of budgeting, have a look at Bjarte Bogsnes's Beyond Budgeting book.
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I don't agree that it's a cover budget. Fundamentally, either the project manager is providing a useful service to the project (and should be paid for their time), or they shouldn't be involved in the project. Of course, some people will over-bill the PM's time, but anything can be over or under-billed. Commented Mar 6, 2012 at 23:13
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I see your point, however customers don't want to pay for management and leadership overheads, so unless you give them a detailed list about what does management cost mean, they may not sign the working agreement.– ZsoltCommented Mar 7, 2012 at 16:28
I think in most cases this is already decided by contract or corporate policies, so PM is just following it. From my experience in most cases PM cost is part of project cost, mostly indirect cost...
All labor and materiel resources required to successfully deliver a project are part of the contract budget base. This would include project management processes, which typically is between 5% to maybe as high as 20% of the total budget base, depending on industry and other factors. PM processes include the PM role, as well as project PM control roles. So, yes, project costs include PM labor.
answered Mar 5, 2012 at 14:04
Of course, your business should be interessed in the overall cost of project (in terms on time, resources, money, ...). It is common to split the cost of project in two category: "Inner cost" and "direct cost". Responding to your question, PM's cost should be part of the "inner cost" of your project.
This is one of those questions that is best answered with "it depends". It depends on how your particular company looks at, and charges for, projects.
There are two ways for a PM to be costed - as a 'direct' cost; a cost that is a direct cost of doing the project (project resources, subcontractors, etc.), or as an 'indirect' cost; a cost that is 'associated' with the project, but wold still be there if the project wasn't (rent, utilities, office supplies, etc.)
Some companies will look assign a PM to a single project, for the specific and only job of managing that project. In these types of cases the PM cost will most likely be considered a "direct" cost and be built into the budget as a separate line item.
In other cases though, the PM may be assigned to multiple projects, or have another responsibility as well as the project. In these cases the the cost of the PM may be considered and "indirect" cost and be covered under the Overhead cost.
So really it's where do you fall in relation to direct or indirect costs, and can you justify your expense in the project to the client?
answered Mar 5, 2012 at 15:46
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This is a good point that some companies treat the PM function as overhead. Tho, to be fair I believe this is rare (in my exp anyway) Commented Mar 6, 2012 at 4:52
As previously mentioned, You have to specify internal and external budget. Selling a product, we are presenting to the customer offer on a particular product. Customer is interested in the price and delivery time.
The project is implemented by a team, part of which can be developers, analysts, designers and also project manager. Hence, all the costs of individual team members should be included in your internal budget and final price should incorporate all of them.
If you are able to specify the fixed costs of communication, such as transfers to the customer, or accommodation if the project requires them, you can include them in the external budget as part of the offer. But you can also increase the price of the project - then client doesn't have to deal with it.
At a time when the worktime of all team members is estimated and internal budget is created, you can specify a concrete offer for the customer.
PM's work should be included there for sure.
Yes.
Project management activities are part of the scope of the work of a project. The budget for a project should capture all costs associated with the entire scope for the project.
Similarly the baseline plans for schedule, risk, resources and quality should all capture the entire and complete project scope, including PM activities.
Project management is part of the scope and delivery of every project. Consequently, the cost for project management is part of the project cost.
But cost is not the same thing as price. Cost is defined by the resources which are required to produce the deliveries. Price is the result of negotiations with customers.
Based on the policy of your organization, the project manager can be a dedicated position, or it can be added proportional to the other positions. One can also indicate only some parts of the PM in the quotation (e.g. travel expenses) and add the rest as common cost.
Yes, the project manager should include his cost to the project. Regardless of whether your organization subscribes to cost-accounting or activity-accounting, I believe something as crucial as project management should be included in the cost.
If this is not the case then the organization will not be able to track the financial aspect of the project properly. As it has already been said in some of the answers above, most of the time you may not have the control over budget, which is really sad because Project management is all about budget, scope and time. But then we don't live in an ideal world. Client's will only pay what they can pay. This does not mean you should not track the actual cost of the project.
You need to know actual cost of an entire project and it is not just the human resource costs & licenses but also the depreciations & over times. Only when you see these data over a period you will be able to improve your pricing, if the deficit starts becoming significant then your organization's marketing & sales strategy needs to change.
