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Cost Components and Cost Centers

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Evgeny Z.
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Dear all,

I seem not be able to grasp the concept of a cost component and cost center. This seems to be quite different from what you have in MSP and seem to give a user a lot of possibilities.

I realize that I am may be being lazy to spend sufficient amount of time on it, but can someone just say in few words what it is all about?

Regards.

Evgeny

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Evgeny Z.
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Vladimir,

thank you. You suggested very interesting idea for travel expenses planning.

I think the easiest to assume, that in my case travel costs are proportional to duration of resource assignment to a task, which is not exactly the same as being proportional to resource work hours (because some resources may be assigned to work with slight overtime to some of the tasks (e.g. Field Engineer 120%). So for me I think easiest would be to create resource TravelCost and to add him to an activity together with the real resource.

Or in case I never assign resources with overtime - just to add travel expenses in the same way as hourly rate as a seporate cost component.

So, one way or another, I found the solution

Regards.

Evgeny 

Evgeny,

Is return flight cost spent once on return or weekly?

What is travel per day? Additional daily taxi fare?

What is % of the week resource spent travelling? Travel belongs to the project schedule or not?

From your explanation I understood that return flight is made weekly on weekends, that each day there are additional expenses on taxi fare or similar. But I do not understand what do you mean by [ % of time, user spends, travelling].

We usually model travel expenses as hammocks from the start to the finish of remote work.

There are many ways to model travel expenses. One of them – create resource Return Flight with the calendar that have two hours – one on Friday evening, second – on Sunday evening. Set this resource hour cost (cost component Travel Expenses) equal to one way flight. Assign this resource to created hammock.

Create second resource Daily travel with the calendar that have one hour in the day (at the end of the work day) and hour cost equal to daily travel expenses. Assign this resource to the same hammock but in the different team.

This is the case when Travel Expenses are spent independently of resource work – just because resource is away.

Another case when daily travel expenses are proportional to resource work hours. In this case they are added to the cost of resource hour as separate cost component. In this case you may avoid creating artificial resource Return Flight, call the Hammock “Return Flights” and assign return flight travel cost directly to hammock.

Best Regards,

Vladimir

Evgeny Z.
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Vladimir,

Sorry if it was not clear. I want travel cost to be calculated based on the several user-defined parameters and based on the duration of assignment. This  shall work both for hammock as well as for normal Activities. It shall work like this:

 

Project wide parameters (e.g. project-wide user-defined field)

Return Flight Cost (inputted by a user)

Travel cost per day (inputted by a user)

 

Resource -specific parameters (resource-specific user-defined field)

% of weeks, a resource spends travelling  

 

Travel cost per assignment:

[Travel Cost per assignment] = ([Duration of assignment in weeks]* [Return Flight Cost] + [Duration of assignment in days]*[ Travel cost per day])*[ % of time, user spends, travelling]

 

Regards.

 

Evgeny

Evgeny,

you did not create clear description of your task. In particular about Return Flight Cost.

In resource table you can assign to any resource travel cost per hour. It looks like you want this but the task may be more complex.

In more complex cases create a hammock that lasts from the firsst to the last resource usage at the remote location and assign travel costs there. This hammock may have its own calendar (weekends for an example) permitting to define money spending on the certain days (dates).

Regards,

Vladimir

Rafael Davila
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We do not measure or plan productivity and activity duration based on cost but on resources, usually full crews as not always team production rate is linear with some resource or multi-resource. 

We keep track of unit costs as well as man-hours per unit. Man hours per unit is a measure of labor productivity, it is not fixed even if you plan for it. 

With low cost accounting packages such as Peachtree Complete you model labor cost as a separate cost code and other costs under separate cost code, this can be easily done with Spider as well as calculating the sum by using Cost Centers, usually a two level hierarchy of costs and therefore this is why I never looked for Spider to make it any easier, regarding time distributed unit costs and mh/unit this is something I am missing. Even low cost Peachtree would provide for automatic assignment of labor burden as a % of direct labor, not perfect but for many better than using a trash account. 

Software schedules are a different monster, and shall be managed using other approaches that best fit the industry needs and realities. I do not believe in Generic Best Practices, what is good practice in Software Schedules might not be enough for Construction Schedules and vice-versa. 

I wonder if unit job costing is valued or used in Russia and if used how it is implemented, maybe there is a real need to implement unit costing on their scheduling software.  To my clients unit-job costing is a matter of life or death even if using informal methods not integrated with accounting as over 70% do. 

Evgeny Z.
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Bogdan,

I still think, that we are talking about different things, but this is not so significant, since I see that it is all "debugable".

I have the following practical question, regarding modeling of costs.

I need to model travel costs. Travel costs consist of some fixed daily cost (hotel, rental car, per diems etc), plus fixed return flight ticket cost per travel.  Assumption is that people always travel home for weekend.

The straightforward way to model this would be to assign to activity all these costs manually, however I would like to check if this can be automated. In ideal case I would like to have the following:

I create a global variables: Return Flight Cost, Daily Travel Cost.

I also specify per resource what percentage of time he travels, the rest he still works, but does the job remotely.   So, if resource travels 50% of the time, and he is assigned to 4 weeks activity, the assumption shall be that the travel cost for 2 weeks shall be calculated for this activity.

So I would want that if  I assign a specific resource to a specific activity, then the travel cost will be added/calculated automatically, based on the criteria, specified by me.   Also I would want that if I change the Return Flight Cost, Daily Travel Cost variables, then the travel costs would be re-calculated for the whole project.

Is it possible to do it in Spider?

Bogdan Leonte
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Please look at activity with code "ActAssgRes" -> PerHour[Remaining] = 1200 units of money.

For this activity you have the following costs assigned:

1. Resource A - general cost/hour of 10; 40 hours x 10 unit/hour = 400 units of money;

2. Resource A - assignment cost/hour of 10; 40 hours x 10 unit/hour = 400 units of money;

3. Activity "ActAssgRes" cost/hour of 10; 40 hours x 10 unit/hour = 400 units of money;

Summing all costs you have 1200 units of money, which is correct.

Summing costs from point 1. and 2. gives you the cost of the assignment, not of the activity.

Hope this clears things up.

Best Regards,

Bogdan

 

Evgeny Z.
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Bogdan,

I understand  why I can see the cost, but what I want to point out is that the logical formula

[Remaining]=[Per Hour]*[Duration Hours] does not work for all lines, specifically for the lines I have highlighted in my previous post, because [Per Hour] column is empty, but Remaining column is not

Regards.

Evgeny

Bogdan Leonte
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Rafael,

I agree with you, but you are talking about the construction industry, I don't think that for software projects you can have a number of lines of functional code per hour, at least that's what I belive, therefore you cannot take into consideration the volume of work or productivity. Perhaps I am wrong?!

Best Regards,

Bogdan

Bogdan Leonte
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Evgeny,

all costs assigned to an activity or resources of a specific cost component are summed in the cost component, your highlighted activities have costs because you assigned a cost of 10 to Resource A in the resource table and the program calculates the number of hours x hour cost (from the resource table).

Regards,

Bogdan

Rafael Davila
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I must be the only alien remaining in this world. I feel like with my mind is somewhere else. I cannot see much value on cost/hour without its relation to volume of work. Without volume of work even if cost and resource loaded I cannot follow the logic on activity performance.

I am still looking for the missing link and no single CPM software gives me a direct answer to the missing link.

http://www.foundationsoft.com/resources/articles/77-unit-cost-and-production-reporting.htm#!

Maybe I forgot but I am also interested in time distributed volume of work, once time distributed costs and volume of work are available then time distributed unit cost shall fall. 

For decades we have been tracking unit costs, it is with unit costs we manage our costs, it is with unit cost we prepare our estimates and we even have unit cost contracts. No way without unit costs we will ever manage costs.  In addition to data collecting issues this is another reason why we are reluctant to use CPM as a method for cost control, not good enough. 

We follow unit cost using cost accounts broken down by labor, equipment, materials, subcontracts and other and we understand the mismatch of data on the system.  Labor costs are entered weekly, the remaining usually monthly as per invoicing of our suppliers.

Evgeny Z.
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Bogdan, Vladimir,

thank you very much! It works.

But I have a question. In my example the cost component, which I was working with (PerHour) I have applied on the per hour basis only to Assignments, Activities and resources.  Yet it seems, that Spider applies different logic when choosing whether to display the value when it comes to [Remaining] and [per Hour]. Why is that? Isn't it logical to assume, that if the value in [per Hour] column is empty, then the value in the [Remaining] value will also be?

In the example below I highlighted differences.

 photo Untitled_zps8160601c.png

Evgeny,

total cost column does not show how it was calculated, what cost components were included, if the cost was set per hour, per unit or fixed. In any case you will need the columns where costs were entered and apply filters to these columns as Bogdan suggested.

You can do it in the Gantt Chart but don't forget about activity, resource, material and assignment tables.

Bogdan Leonte
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Evgeny,

1. Display the Cost Component column, per Hour [per Hour];

2. Right-Click the column header and select "Filter by Values";

3. In the menu, in the top, left corner you can select Activity, Phases, Assignments. From here select Assignments/Activities and there you go.

4. You can filter both acctivity hour cost and assignment hour cost by applying both filters, one after another. To do this you have to uncheck the 'Cancel previous filter' checkbox from the menu.

You can also create these filters as permanent filters using the Filter Menu. If you create a filter in the filter menu, the per Hour[per Hour] cost component column doesn't have to be displayed in order for the filter to be applied.

Here is you file, with the created filter.

http://www.speedyshare.com/SNEAg/AssignmentCosts.001.sprj

Best Regards,

Bogdan

Bogdan Leonte
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Evgeny,

1. Display the Cost Component column, per Hour [per Hour];

2. Right-Click the column header and select "Filter by Values";

3. In the menu, in the top, left corner you can select Activity, Phases, Assignments. From here select Assignments/Activities and there you go.

4. You can filter both acctivity hour cost and assignment hour cost by applying both filters, one after another. To do this you have to uncheck the 'Cancel previous filter' checkbox from the menu.

You can also create these filters as permanent filters using the Filter Menu. If you create a filter in the filter menu, the per Hour[per Hour] cost component column doesn't have to be displayed in order for the filter to be applied.

Here is you file, with the created filter.

 

http://www.speedyshare.com/SNEAg/AssignmentCosts.001.sprj

Best Regards,

Bogdan

Rafael Davila
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Vladimir,

I mean "what we can actually get using tabular reports", the value of cost component cost, material cost and resource cost for time distributed data, following time distributed unit cost might be an option but for a start I would look for simple time distributed data we are used to follow.

Tracking unit costing history as unit costing software can do is an added bonus that would be welcomed on my part. Fortunately Spider already tracks cost and volume of work on performance archive, necessary for unit costing, something none of the other scheduling software I know can do. The information is there, the challenge is to make it happen.  For any user defined period unit cost would be [truncated cost] / [truncated volume of work].  How to handle the issue when a period is on the middle between performance period and a future period I recognize it is a challenge so such period unit cost would still be a Planned value. Perhaps a value that includes truncated actual and truncated remaining values. Estimates on future unit costs is something I never heard on traditional job costing software that would be an advanced functionality. 

It is just an idea to be much improved if makes sense, how to present and filter display options is something that I am sure will be worked out by your team. I believe all time distributed data can be displayed in a single row, just more columns will be displayed when more options are selected. I do not pretend it to eliminate the need for tabular reports that might be more flexible. At times I even show the data on the Graphic Display, this is my option to sync it with the bars. It is all about ease of use. 

Best Regards,

Rafael

Evgeny Z.
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Vladimir,

I agree, that Spider cost modeling possibilities are very sophisticated and flexible. But what I fear (and may be I just do not see all possibilities), that this complication may be difficult to debug, especially if you get the schedule from somebody else

In the below example, one can see that on the Activity Gantt, costs, coming from cost components connected to Resources and to Assignments, are shown on the same line.

Costs, coming from cost components, assigned to Activity, are shown in a sum of costs, originating from Resources, Assignments and Materials, associated with this Activity.

But may be I did not discover all the possibilities yet. So I have a couple of questions, just looking at my example:

1) Is it possible to filter all assignments, which have cost component linked to assignment directly (in the example below these are Assg-B, ActAssg-B, ActAssgRes-A)

2) Is it possible to filter Activities, which have cost components, linked directly to activities? (in the example below these are Act, ActAssg, ActAssgRes)

https://drive.google.com/file/d/0B1FBt_G3gCVqSTFmSFFSTVU4WEE/edit?usp=sharing

 

 photo costcomponents_zpsc50474ef.png

Rafael,

do you mean variable unit costs at different time periods? These data is hard to show in the table form because the periods are user defined and may be different for any object (the value of cost component unit cost, material unit cost, resource hour cost).

Best Regards,

Vladimir

Rafael Davila
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I would say perhaps time distributed tables of resource and cost assignments without need to generate reports for this purpose is what is missed. The Gantt only gives you the totals on a single column. 

I have no issues with reports but recognize it would be easier if a user modifiable table(s) is provided for resources/materials/costs, can be very useful when you want to see variable quantities/workloads time distribution performed by the software.

It is not about missed functionality but a matter on ease of use.

Maybe on the Gantt Views the right side table can be programmed to switch from displaying other fields to displaying time distributed data for resources/materials/costs alowwing the user to select what data [Actual/Plan/Availability..] and what periods [by week/month/...].

Evgeny,

everything is easy.

Imagine that one of your resources is subcontractor. What is subcontractor hour cost? It does not exist! Subcontractor is paid for the job done (fixed amount, or per hour, or per amount of work done). Besides, not all resources are paid for hours. In Russia it is not rare when people are paid for the amount of work done. Resource hour and unit rates may depend on activity types - it is also modelled as assignment cost.

Assignment cost is flexible tool to model resource costs and payments (that certainly cannot be modelled as hour rate).

Any field can be seen in the Gantt Chart including all assigned costs. To see assignment costs show assignments and select fields that you want to see at any place in the Gantt Chart. For each cost component you may see hour cost, fixed cost, unit cost, planned (remaining cost), actual cost, cumulative cost and the same fields from the baseline (or compared version), deviations.

What is missed?

Best Regards,

Vladimir

Rafael Davila
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Evgeny,

Resource/Materials-assigned and Activity-assigned costs are assignment-based costs unless I am missing something. I am lost with your question. 

Best Regards,

Rafael

Evgeny Z.
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Rafael,

I think I may be was not clear regarding the Assignment-based cost components.

Resource-assigned cost component model hourly-rate of a resource

Activity-assigned fixed cost component models some fixed cost per activity.

Activity-assigned per hour cost component models some costs, which depend on the duration of activity, but not resources or material-related

But what assignment-based cost components are modeling? Can you give me some practical example?

Regards.

Evgeny

Rafael Davila
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Evgeny, my two cents are:
  •  2) I see, that activity-assigned and especially assignment-assigned cost components are not so easy to see. Unlike Materials and Resources they do not appear on the Gantt chart. So if one gets the project schedule from somebody else, what is the easy way to analyze it all without clicking on every Activity and every assignment?
  • The way to go I believe is using the tabular reports that once you get them you shall save as templates. It is not as easy as if some sort of Cost Gantt is feasible and available. The following reference is about one of many/infinite ways to define hierarchy of cost codes. As is Spider can handle all.
  • http://docs.oracle.com/cd/E16582_01/doc.91/e15121/set_up_cost_code_struc...  
Best Regards,Rafael
Evgeny Z.
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Bogdan, Vladimir, Rafael,

thank you for your help. It is more or less clear now.

So, effectively cost component can be assigned:

To a Resource on the per hour basis

To an Activity on the per hour, per volume unit or on the fixed per activity basis

To a Material on the unit cost basis.

To an Assignment on the per hour, per volume unit or on the fixed per assignment basis.

In addition there are some formula- dependent cost components, which I did not look at yet.

So all together this is seems to be very powerful system to simulate costs.

Questions:

1) What assignment-based cost components are meant to simulate (as an opposite to Resource-based and Activity-based)?

 2) I see, that activity-assigned and especially assignment-assigned cost components are not so easy to see. Unlike Materials and Resources they do not appear on the Gantt chart. So if one gets the project schedule from somebody else, what is the easy way to analyze it all without clicking on every Activity and every assignment? 

Mike,

This intrinsic problem does not exist here. It is usual that contractors are paid per volumes done. It is not rare when workers are also paid for the volumes done. Time is estimated by expected resource productivity in construction norms but if activity duration will be longer or shorter does not change its contract cost.

When delays are caused by the Client the Contractor may request some compensation for idle time. If the volumes of work are different then the cost of work is adjusted. That is why unit price is usual in local contracts (it is very rare case when the drawings are ready before construction starts).

But internal cost is really time related even if the workers are paid for the volumes. There are still components depending on time like the cost of supervision.

I don’t like this classic triangle. It makes decision making complicated because the weight of each side of this triangle was not defined. We usually suggest to estimate the cost of time. And scope shall be done in any case.  For developers different scope may bring different profit and so can also be estimated.

Using one success criterion (Integrated Cost that includes cost of time) makes decision making easier and objective.

So we have four types of costs:

Fixed, Per time unit (hour), Per Volume Unit, Dependent (calculated by some formulas linking other cost components).

And all of these costs may have parallel values: contract costs, internal costs, estimated costs, etc. 

Best Regards,

Vladimir 

Mike Testro
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Hi Vladimir

You have just highlighted the intrinsic problem with construction work.

Labour costs are paid out per hour and paid for by volume of work done.

The ratio of work to be done per hour is the best guess of the estimator.

The risk of taking too long to do a set volume of work is shifted down the supply chain to guy with the hammer in his hand - who is probably doing piece work for a 3rd level subbie - he also takes on the biggest chunk of the risk of getting paid eventually.

Never the less the time related costs remain one of the four principle elements of a unit price.

The fixed costs are as I stated - the total cost allocated over the total volume of work on a percentage basis.

If there is more work paid for then the fixed price is over recovered which is why most forms of contract have an adjustment clause if the volume of work increases or decreases.

The same applies if a set piece of work takes longer to complete - this is a classic disruption claim.

This principle is set down in the classic triangle of Scope - Time - Money where everything is linked back to the contract agreement in a locked up ratio.

Best regards

Mike Testro

Mike,

Install and Remove Batching Plant refered to the whole activity and not to 1 m3 and it is fixed cost.

Cement – sand – water – additives are assigned materials and their costs are calculated and added to activity cost automatically. Material consumption is usually defined per 1 m3.

Time costs are OK if resources are paid for hours. Even if subcontractor will reveal his labour content you will not pay him for hours, you will not motivate slow work.  So if an activity finish will be delayed it does not mean that the Client will pay more. I am used for two types of payments in the contracts: fixed or per each unit of volume.

Indirect costs in most cases are calculated as the percentage of some direct costs (labour in most cases) but the costs of equipment such as tower crane are usually calculated directly.

Cost may include expected profit, taxes, etc. calculated by some formulas but we do not call them percentage costs.

Best Regards,

Vladimir

Mike Testro
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Hi Vladimir

Consider the cost breakdown for producing 1 m3 of site mixed concrete.

Fixed cost: Install Batching Plant and Remove.

Volume Cost: Cement - sand - gravel - water - additives

Time Costs: Mixer trucks - placing crew - vibrating pokers - surface floats

Percentage costs: Profit - O'heads

Each of these cost heads contribute to the pie chart for each m3 cube oc concrete - so if there is 1,000 m3 cube of concrete then the fixed cost will contribute .01% to each m3.

Indirect costs such as supervision - tower crane - batching plant operation are not included.

If a subcontractor will not reveal his labour content then I have to use labour % based on impirical experience.

Best regards

Mike Testro

Hi Mike,

each cost may consist of components like labor cost, machine cost, material cost, indirect cost, profit, taxes, etc, and may be fixed, per hour or per unit.

If the work volume is measured in percents then unit cost may be defined for the percent. But maybe you meant something else by percentage cost? And what do you mean by volume cost? Please clarify.

If the job in the schedule is done by subcontractor you will use fixed cost or unit cost, but never hour cost. Subcontractors will not be paid more money for slow work.

Works are done by the crews that include people and machines. Did I understand correctly that as resources you use manhours? If yes, then you shall set cost different way because labor cost does not cover all expenses. Besides, you are not able to apply resource leveling because in most cases constrained resources are machines.

With cost components Earned Vaue may be applied to selected groups of cost components like Labor cost. In this case expensive materials will not be counted when work progress is measured.

Best Regards,

Vladimir

Mike Testro
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Hi Evgeny

In a construction project the "cost" element relates to the contract price.

This is usually broken down into a unit cost for a specific item of work in a BoQ or Cost Plan which summaries each unit cost into sub total and totals.

There are 4 basic elements that comprise the unit cost:

Fixed Cost

Volume cost

Time Cost

Percentage Cost

The element that has any relevance to construction planning is the Time Costs as this contains the resources relevant to the construction process.

I set up resource modelling based on the resource hours extracted from the Time Cost element which is then balanced by the gang size for each task duration.

Using only one resource "hours" simplifies the resource modelling process.

The allocation of hours from the BoQ to the programme is what your WBS is for but worked in reverse.

I do not use "cost" for progress reporting or EVA because of what I call the Gold Tap Syndrome where fixing a very expensive item takes about about the same as fixing a very cheap one.

Hope this helps.

Best regards

Mike Testro

Rafael Davila
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I understand a Cost Account might contain Several Cost Components if you use Cost Components to model Cost Types within a cost account. So it depends on your cost account structure.

Some Job Costing Packages define several cost types for each cost account and the total sum of the cost types equal total for the cost account, others even allow for more levels like a group of cost accounts belonging to a summary account. Job Costing is not always managed using two hierarchical levels.

At home it is usual to have cost systems that define cost types as one of the following; labor, equipment, materials, subcontracts and other. Each Cost Code will include all five and will summarize as their sum. The system allows to subtotal certain groups and will provide a grand total for a single job and if desired a grand total for a group of jobs.

I find Spider can model any hierarchical cost structure like no other software, just that for every hierarchical level you got to define it by including all cost components under the hierarchical level.  Not sure but there might be some room for making it easier, perhaps by allowing other Cost Centers become members of a higher level Cost Center and if a circular reference is created then the new member will be rejected.

Maybe we can have a Cost Chart in addition to WBS and OBS Charts with multiple structures where you can see the hierarchy and within each box the cost component members. A separate box will have all cost components, used or not used and in bold those not used. And as always a Cost Component can be used in several Cost Centers.  Just an idea thinking on how Spider is designed that came to my mind that if valid shall be matured. 

Bogdan explained very well. But I have some questions because I am not sure that cost components are the same as cost accounts.

For example, resource cost in Spider Project may include several cost components like salary, indirect cost, taxes, etc. And some cost components may depend on other cost components and are calculated by user defined formulas. I did not meet resource cost consisting of several cost accounts in other packages.

Cost centers may be used for managing parallel budgets. One set of cost components may represent contract costs, another set of cost components may represent internal costs. In this case total cost looses any sense and Spider Project users work with Cost Center Contract Cost that includes all contract cost components and Cost Center Internal Cost that includes internal cost components. Creating Cost Center don't forget to specify what materials belong to the cost center. You may select to calculate some costs without the cost of materials. Besides there is a choice if to include negative values (supplies and payments).

There are many ways to use this functionality. Above examples are simple and most used.

In Demo project included in Spider Project Demo there are several cost components and cost centers like Expenses only, Expenses Plus Funding, Expenses Plus Profit. Project schedule may be leveled by any cost component or Cost Center. In particular example project shall be leveled by cost center Expenses Plus Funding.

For any cost component you may set discounting and calculate project NPV, IRR, payback period.

And of course it is easy to create and to use reference-books of unit costs.

Earned Value Analysis may be applied to any cost component and cost center, and also to other project parameters.

There are also Material Centers and Resource Centers in addition to Material and Resource Breakdown Structures.

If cost components have different unit costs (different currencies) cost center is calculated in user selected basic currency. Changing basic currency you may convert the total cost of cost centers from one currency to another. And since Spider Project keeps project history you will have the history of exchange rates and their influence on project costs.

Bogdan Leonte
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Bluntly said:

1. Cost Components = Cost Accounts, one cost component can be assigned to one or more activities, one activity can have more than one Cost Component.

They can be assigned in different ways (fixed, per volume unit, per hour) to activities or resources (Labour, Machines or Materials).

2. Cost Centers contain one or more Cost Components and basicaly summed them up. Cost Centers take into account the Unit Cost of the Cost Components. The Unit Cost is used to simulate revenue (has negative value) or to simulate different currencies.

This is a very crude and blunt explanation but it should give you an ideea of how they work.

Here is a simple example:

http://speedy.sh/q9Ab2/Project1.001.sprj