Special Problems

There are always special problems that, if overlooked, can have a severe impact on the pricing effort. As an example, pricing must include an understanding of cost control— specifically, how costs are billed back to the project. There are three possible situations:

• Work is priced out at the department average, and all work performed is charged to the project at the department average salary, regardless of who accomplished the work. This technique is obviously the easiest, but encourages project managers to fight for the highest salary resources, since only average wages are billed to the project.

• Work is priced out at the department average, but all work performed is billed back to the project at the actual salary of those employees who perform the work. This method can create a severe headache for the project manager if he tries to use only the best employees on his project. If these employees are earning substantially more money than the department average, then a cost overrun will occur unless the employees can perform the work in less time. Some companies are forced to use this method by government agencies and have estimating problems when the project that has to be priced out is of a short duration where only the higher-salaried employees can be used. In such a situation it is common to "inflate" the direct labor hours to compensate for the added costs.

• The work is priced out at the actual salary of those employees who will perform the work, and the cost is billed back the same way. This method is the ideal situation as long as the people can be identified during the pricing effort.

Some companies use a combination of all three methods. In this case, the project office is priced out using the third method (because these people are identified early), whereas the functional employees are priced out using the first or second method.

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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