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2.2.2.2P Cost Accounts
(2.2.2.2P.P1)
Many projects have one overall budget that includes all of the project labor costs, hardware/software costs, materials costs, etc. This is fine for smaller and medium-sized projects. However, as a project gets larger it helps to have the overall budget broken down into smaller subsets. This is a similar to the concept of breaking down a project with long duration into a set of smaller projects. Having your budget allocated at a lower level allows you to keep better control of the details and it may point out potential budget trouble quicker than having everything rolled up into one consolidated project budget.
Cost accounts are used to allocate the budget at a lower level. Cost accounts are formally established in your organization’s General Ledger so that your budget is actually allocated in each detailed cost account and the actual project expenses are reported at that level as well.
The cost accounts can be established in a couple of ways. One way is to simply divide the different types of costs into separate cost account budgets. In this approach, you could have a cost account for internal labor charges, external labor charges, hardware costs, software costs, training costs, travel costs, etc.
Another way to set up the cost accounts is based on the WBS. After you have completed the WBS, you can create cost accounts for each group of related activities. Theoretically you could set up a cost account for each activity, but that does not make practical sense. Instead you may set up a separate cost account and budget for each phase, stage or milestone (a milestone represents the completion of one or more deliverables.)
If you set up cost accounts for related sets of work on the WBS, you have a couple choices as to what budget gets tracked. You could just track the labor costs (internal and external) associated with the work. Another option is to track all of the labor and non-labor costs associated with that work. The various types of costs can be tracked with sub-account numbers within the cost account. Of course, the more detailed your cost accounts are, the more work you will have setting up, allocating and tracking the cost account budgets. However, if your project is very large and costly, you definitely want to utilize some aspects of this technique. In very large projects, the individual cost account budgets might still be larger than the entire project budgets in some organizations.
Examples of Cost Accounts (2.2.2.2P.P2)
This section provides examples of ways to use cost accounts to isolate and categorize various costs of the project.
|
Type |
Examples of How to Split a $500,000 budget |
|
Simple |
One budget, all $500,000 in one project account |
|
Split labor and non-labor |
1000 Labor $325,000 9000 Non-labor $175,000 |
|
Differentiate labor |
1100 Employee labor $200,000 1200 Contract labor $125,000 9000 Non-labor $175,000 |
|
Differentiate non-labor |
1100 Employee labor $200,000 1200 Contract labor $125,000 9010 Supplies $5,000 9020 Hardware $45,000 9030 Software $75,000 9040 Training $25,000 9050 Travel $25,000 |
|
Differentiate capital and expense |
Capital 1200 Contract labor $125,000 9020 Hardware $45,000 9030 Software $75,000 Expenses 1100 Employee labor $200,000 9010 Supplies $5,000 9040 Training $25,000 9050 Travel $25,000 |
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Allocate by project phase The project number is 122, and the costs are allocated within the project phases. Within each project phase, the budget can be allocated by type, capital/expense, etc. For example 122-5005-1200 would be contract labor within the research phase of project 122. |
122-5005 Product research $25,000 122-5010 Product analysis $50,000 122-5015 Product development $300,000 122-5020 Alpha and beta testing $100,000 122-5025 Project launch $25,000 |
