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Planning costs for unproductive resources.

10 replies [Last post]
Carlos Arana
User offline. Last seen 2 years 32 weeks ago. Offline
Joined: 6 Jun 2009
Posts: 178

Hi,

I have found a situation that I don't understand how to represent in a schedule:

Ideally, I can define one activity and assign their resources, and the costs depend on how much hours are scheduled for a specific resource, then I'm planning to "pay the activity" for "productive work", right? But in real life there are costs that, being unproductive, must be planned and paid. I have two examples, the first one is machinery:

The project must pay a monthly rent for the use of a machine, and this cost does not depend on how much the machine is used, It could be stopped half day because there is just one shift planned or it may have rest times waiting for another workfront to finish. The cost at the end of the month will be the same, though production will not be the same. And I can assign the hour costs for the machine, but the contract for its rent specifies a monthly cost for its use. For example, I must pay an entire month to use an excavator during half day during that month. The inverse is also true, I can pay the same month for the excavator and use it during two daily shifts, and pay the same for the rent (Tough not the same for consumables, like oil and gas).

My second example is for handwork payments under mexican law (Tough I believe that there must be similar rules under other countries' regulations):

Under the Mexican law, each week must have one paid rest day. The Mexican Law considers a normal workweek of 6 days, 8 hours @day. But the seventh day, even when it is not productive, must be paid (and let's not talk about holidays and vacations, which must also be paid).

So, I should schedule the productivity with one calendar (8 hours, 6 days a week) but the payments should be scheduled with another calendar (8 hours, 7 days a week). I'm not getting how to do this.

How should these unproductive costs taken into account in the schedule?

Best regards,

Carlos.

Replies

Rafael Davila
User offline. Last seen 3 hours 8 min ago. Offline
Joined: 1 Mar 2004
Posts: 5011

Happy 3 kings day.

Photobucket

Best regards,

Rafael

Carlos Arana
User offline. Last seen 2 years 32 weeks ago. Offline
Joined: 6 Jun 2009
Posts: 178

Thanks Vladimir and Rafael.

Also, Happy new year. I was on vacation so I could not send a card but you both know that I appreciate you.

Best Regards, merry christmas and happy new year.

-Carlos.

Rafael Davila
User offline. Last seen 3 hours 8 min ago. Offline
Joined: 1 Mar 2004
Posts: 5011

Vladimir,

Definitively Spider Project will not let you down, it is the CPM software with the most rich set of tools for modeling resources I have ever used. 

Thanks for the reminder on Material resources and thanks for months ago explaining me how to model idle resources especially with regard to the hammock as at the beginning I was using too many hammocks.

Yes there are many ways and depending on your needs at the moment one might be better choice than the other.

Best regards,

Rafael 

Rafael,

in Spider Project you can define that resource consumes materials.

It can be defined per hour of resource work (simpliest case), or per unit of activity volumes (km, m3, etc.) for different activity types.

I suggested not to assign costs to rented machines but materials (gas, oil, ...) shall be assigned. It will permit to get reports not only on additional costs but also on physical amounts that are necessary at any moment.

And it is also possible to define resource cost selecting only additional expenses and stiil assign the rental cost to resource usage hammock.

There are many ways ...

Best Regards,

Vladimir

Rafael Davila
User offline. Last seen 3 hours 8 min ago. Offline
Joined: 1 Mar 2004
Posts: 5011

Carlos and Vladimir

At home for managing purposes we use accrual method for accounting as well as for job costing.

http://www.nolo.com/legal-encyclopedia/cash-vs-accrual-accounting-29513.html

For tax return purposes most Contractors use the Completed Job Method, convenient for tax purposes only.

http://www.chsbuildersoftware.com/005-FlashMovies/00-27-AccountingMethods/AccountingMethods.pdf

For cash flow modeling all our payments are delayed some time after accrual. For example we pay labor on a specific day at next week, we pay equipment and materials 30 to 60 days after receipt of materials /equipment. Other purchases such as those done to continental US suppliers we pay 50% in advance and 50% upon delivery with a bank letter of credit. Can be somewhat simplified for purpose of analysis but we prefer accrual methods when not performing discounted cash flow analysis, better for our needs with the added convenience of being simpler than applying the different rules to each payment type. Because we are not into long term investment business we rarely make discounted cash flow analysis, if a real estate investment business this type of analysis would be the order of the day.

Usually once or twice a year we generate cash flow statements as required by our banks and sureties, but these are summarized projections, there is no return with being granular as these projections are not precise, they never happen exactly as planned. These statements are for short term so there is no need to use discounted cash flow, the interest is on the amount at each period.

http://horne-llp.com/media/243431/what_sureties-bankers_are_looking_for_in_the_contractor_s_financial_statements.pdf

My example is based on accrual method and assigned a different cost to machinery in use to account for oil and other expenses related to the use of the equipment but could have been the rental rate only. The software allows for all of them, your selection of method shall be based on your particular need.

Best regards,

Rafael

Carlos,

Rafael suggested solution for the complex case when you pay different rates for the work and idle times.

For your case the solution may be even easier.

Create one milestone that starts at the time when your machine is hired and another one that follows all activities where it will be used. First milestone precedes first activities where the machine will be used and is of ALAP type.

Create hammock activity "Machine Rent" that starts with the first milestone and finishes whith the second milestone.

Don't assign hourly cost to this machine at all. Rental cost shall be assigned to Machine Rent hammock.

Now about this hammock and assigning rental cost.

You shall define special hammock calendar that depends on the way you pay for the machine.

If you pay monthly then define that this activity has only one work hour at the very end of the month (after machine work hours) and assign monthly rate for one hour of this hammock. Add fixed cost for one month. So it shall be two cost assignments: per hour and fixed.

Best Regards,

Vladimir

Rafael Davila
User offline. Last seen 3 hours 8 min ago. Offline
Joined: 1 Mar 2004
Posts: 5011
Carlos Arana
User offline. Last seen 2 years 32 weeks ago. Offline
Joined: 6 Jun 2009
Posts: 178

I made a workaround for the handwork's 7th day paid and not worked, by using cost components: I created a cost component called "CC10:Base salary" and another component called "CC11:7th day", which is calculated by formula and equals CC10/6, then for each 6 days of 8 hours, the worker gets another free day. Fair and clean, I think.

The monthly machineery rentals keeps being my problem. I am thinking that it may be more an issue outside of the software on how I understand the real-life payments of machineery (I.E., Maybe I should think on making a different contract to rent machineery). I am not sure, any idea is welcome.

Best Regards,

Carlos.

Carlos Arana
User offline. Last seen 2 years 32 weeks ago. Offline
Joined: 6 Jun 2009
Posts: 178

Rafael, could you share me your .sprj file to analyze this approach better?

Thanks,

Carlos.

Rafael Davila
User offline. Last seen 3 hours 8 min ago. Offline
Joined: 1 Mar 2004
Posts: 5011

Photobucket

Try using a Hammock activity and set it to happen on the time span you want to model idle time.

Assign resources to model idle time to this hammock using variable work load with a minimum Work Load equal to zero. Use a separate team to assign each resource on the hammock activity.

Assign different hour rate to idle assignments.

Remember to run F8 to keep updated your costs.

With the adequate combination of teams to model non meeting resources, calendars and unit costs you shall be able to model your sample issues.