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  2. Margin (profit/loss)

Setting up costs of your people

A key component to calculating gross margin is having an accurate cost for each person within the organisation

This information will most likely be maintained by the Human Resources team as it is highly sensitive.

The Projectworks permission structure allows your administrator to provide access to the People Costs screen in the following ways:

  • View Costs: View your own, view people that report to you, or view everyone
  • Edit Costs: Edit your own, edit people that report to you, or edit everyone

The Costs screen

You can set up the benefits/costs for each person, from which an hourly cost rate is calculated. As peoples benefits can change over time, all the benefits have start and end dates so the hourly rate that applies on any given day is known. You can include many things, base salaries, bonuses, phone allowance, health insurance – whatever applies for your organisation.

Benefits changes can be loaded in advance, so a pay rise that is effective in 2 months can be loaded, meaning the forward projection of costs for that person will be accurate for margin calculation.

Due to the sensitivity of the information on the Costs screen access will be tightly controlled. To further protect the information, the screen is locked when first loaded, with all values "hashed out". The information can only be viewed (or edited) by unlocking the screen and entering your Project Works password. The screen is also on a timer and will be locked after 1 minute of inactivity.

The screen will default to the current date and list all benefits/costs that are active on that date. You can change the date to the costs that applied on a previous date, or a date in the future.

Note: Information on the costs screen does not integrate with any payroll systems, and is simply a record of the benefits/costs of a person over time.

 

How the hourly rate is calculated

All of the benefits that apply on a particular date are annualised and added together. The total is then divided by the number of working hours of the financial year (which is set up by your Projectworks administrator) to get the hourly rate. This allows an accurate hourly rate to be calculated for each date, and incorporates changes made to a person's benefits (such as an increase to base salary, a higher duty allowance or a new allowance being added to their package). 

How to work out the number of working hours in your financial year

There are a number of ways you may choose to calculate the number of working hours in a period. The method we see the most often is as follows:

  1. Calculate the number or working days (which excludes public holidays)
  2. Deduct the number of leave days (holiday and sick) people are entitled to
  3. Multiply the number of days by the standard hours per day that are worked

 

Adding a new cost or editing an existing cost

The cost of people will change over time, either with a change to their pay, or the addition or removal of a benefit. Changes are handled by either creating a new cost entry, and/or setting an end date to an existing cost entry.

To create a new cost you need to select the type, whether the amount is annual or hourly, the amount, start date, and optionally the end date and notes. 

Caution: If the costs associated with a person change they should be updated by adding a new cost record, and setting the end date on the previous version of the cost

Tips

  • If the cost is to be ongoing, leave the end date blank. 
  • If the cost will only apply for a certain time (eg a higher duty allowance) enter an end date 
  • You can set up a future dated cost if required - remember to also set the end date if it is replacing an existing cost
  • Cost types are set up by your administrator

As an example

If someone had a starting salary of $75,000 and received a pay increase effective from 1 April 2019, you would set an end date to 31 March 2019 on the original Base Salary entry and create a new Base Salary entry with a start date of 1 April 2019.

Replacing the cost with a new one will ensure the hourly rate cost will be calculated correctly, using the new salary effective 1 April 2019. It also maintains the historic hourly rate cost, with the base salary effective from 1 April 2018 - 31 March 2019 used during that period. 

You would only ever edit a cost entry if it was incorrect.

Removing a cost

If a cost/benefit is no longer applicable it needs to be edited, and an end date set to make it inactive. The cost/benefit will no longer be included in calculations after the end date. 

A cost entry can be deleted, but should only be done if the cost entry was an added in error.