Actual cost and effort calculation for a demand and demand task
Summarize
Summary of Actual Cost and Effort Calculation for a Demand and Demand Task
Actual cost and effort represent the realized cost incurred and time spent on work performed for a demand and its associated demand tasks within a given period. These metrics are essential for demand managers to understand the expenditure involved in progressing a demand into a product, feature, or enhancement.
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The calculations rely on approved time cards and resource hourly rates, which can be derived from a rate model, default labor rate, or default system property, depending on availability. Accurate tracking of actual cost and effort helps in assessing and planning demand-related activities effectively.
Key Features
- Calculation Method: Actual cost is computed by multiplying hours reported in time cards by the resource's hourly rate. Actual effort is the total hours reported.
- Hourly Rate Determination:
- Primarily from the rate model associated with the demand.
- If no rate model or hourly rate exists, the default labor rate is used.
- If neither is available, the default system property rate applies.
- Resource Assignments: Resource assignments created in demands are for resource estimation and automatically transfer to the resulting work entity upon demand qualification. They should not be used to allocate resources directly to demand tasks.
- Time Card Submission: Time cards for demand tasks record actual effort and cost, which roll up to the demand level. Extra hours spent on demand activities not linked to demand tasks must also be recorded via time cards and are added to the demand’s total cost and effort.
- Expense Lines: If no demand tasks or assigned resources exist, submitting an approved time card against the demand creates an expense line, contributing to the demand’s actual cost.
Practical Application and Calculation Examples
For a demand with multiple demand tasks assigned to different resources, the system calculates actual effort (hours) and actual cost (hourly rate × hours) for each task. These values roll up to populate the Demand Actual Cost and Demand Actual Effort fields on the demand’s Financials tab.
The hourly rate applied depends on the availability of rate models or default rates:
- Scenario 1: Rates from the rate model yield the highest actual costs.
- Scenario 2: Rates from the default labor rate produce moderate actual costs.
- Scenario 3: Rates from the default system property yield the lowest actual costs.
In all cases, the actual effort sums consistently across scenarios because it only depends on hours worked.
Key Outcomes
- Demand managers gain clear visibility into the true cost and effort of demand assessment and planning activities.
- Accurate financial tracking supports better resource allocation decisions and demand prioritization.
- Understanding the source of hourly rates ensures correct cost calculations and financial reporting.
- Recording extra effort beyond demand tasks ensures comprehensive cost and effort capture.
The actual cost and effort are realized cost incurred and time spent for the work performed on a demand and demand task during a specific time period. Actual cost and effort are calculated based on the approved time cards and hourly rate for the resources and vary based on how the hourly rate for the resource is derived.
Working on a demand task and demand involves cost and time, which add to the overall expenditure of converting a demand to a product, feature, or enhancement. Demand managers therefore need to know the actual cost and effort incurred in assessing and planning activities for a demand. The calculation for actual cost is derived by multiplying the hours reported in the time card by the hourly rate of the resource. The actual effort for a demand task is calculated based on the hours reported in the time card.
The actual effort and cost for the demand tasks are then rolled up for calculating actual effort and cost for the demand. The calculation of the actual cost and hourly rate for a resource is derived as follows:
- If a rate model is associated with the demand, the actual cost is calculated based on the hourly rate defined in the rate model.
- If a rate model is absent or if an hourly rate is not found in the rate model, then the hourly rate is derived from the default labor rate.
- If an hourly rate is not found in the default labor rate, then the hourly rate is derived from the default system property.
Do not create and use resource assignments for allocating resources or groups to a demand task. The resource assignments that you create in the demand are used for the resource estimation of the work entity that would be created from the demand. These resource assignments are automatically moved to the resulting work entity when a demand is qualified and converted.
When you submit a time card for a demand the actual effort and cost are not reflected in the resource assignment, as the resource assignments are not associated with the demand by default. The actual cost and actual effort for the demand remains with the demand and are not transferred to the project created from the demand even if you manually associate a resource assignment with the demand.
If a resource spends extra hours working on a demand that are not associated with demand tasks, then this time must also be recorded. The resource submits the time card for recording the extra hours spent on the demand using the Time Sheet Portal. This extra cost and effort is added to the demand but is not reflected in the actual cost and effort for the demand tasks.
- Demand Actual Cost: actual cost of all the demand tasks + actual cost of extra activities
- Demand Actual Effort: actual effort of all the demand tasks + actual effort of extra activities
If a demand has no task or assigned resource, you can capture the actual cost by submitting a time card against the demand. Once the time card is approved, an expense line is created on the demand. The expense line is then processed and the actual cost of work for that time card is rolled up to the demand into the Demand Actual Cost column.
The following example demonstrates the actual cost and effort calculation for a demand task and its rollup to the demand.
Actual cost and effort calculation based on demand tasks
For a demand (D1), the demand manager delegates activities such as initial assessment, cost estimate, and effort estimate. To delegate these activities, the demand manager creates three demand tasks (DT1, DT2, and DT3) and assigns resources R1, R2, and R3 to each demand task respectively.
The hourly rate defined for the resources in the rate model, default labor rate, and default system property are listed in the following table.
| Resource | Hourly rate in the rate model | Hourly rate in the default labor rate | Hourly rate in the system property |
|---|---|---|---|
| R1 | $200 | $150 | $50 |
| R2 | $250 | $200 | $50 |
| R3 | $150 | $100 | $50 |
Each resource spends a total of eight hours while working on the assigned demand task and submits a time card.
Actual cost and effort calculation for demand task: The demand task actual cost and effort are calculated and displayed on the Demand Task form. The totals differ depending on the method used to derive them.
Scenario 1 shows how the total is calculated if the resource hourly rate is derived from the rate model.
| Actuals | Demand task DT1 | Demand task DT2 | Demand task DT3 |
|---|---|---|---|
| Actual effort | 8 hours | 8 hours | 8 hours |
| Actual cost | 200 * 8 = $1600 | 250 * 8 = $2000 | 150 * 8 = $1200 |
Scenario 2 shows how the total is calculated if the rate model is not associated with the demand and the resource hourly rate is derived from the default labor rate.
| Actuals | Demand task DT1 | Demand task DT2 | Demand task DT3 |
|---|---|---|---|
| Actual effort | 8 hours | 8 hours | 8 hours |
| Actual cost | 150 * 8 = $1200 | 200 * 8 = $1600 | 100 * 8 = $800 |
Scenario 3 shows how the total is calculated if the rate model is not associated with the demand and the resource hourly rate is derived from the default system property.
| Actuals | Demand task DT1 | Demand task DT2 | Demand task DT3 |
|---|---|---|---|
| Actual effort | 8 hours | 8 hours | 8 hours |
| Actual cost | 50 * 8 = $400 | 50 * 8 = $400 | 50 * 8 = $400 |
Actual cost and effort roll up to a demand
The Demand Actual Cost and Demand Actual Effort fields on the Financials tab of the Demand form are populated with the sum of actual costs and actual effort of all the demand tasks.
- If the resource rate for demand task is derived from rate model (Scenario 1), the value in the Demand Actual Cost field is displayed as $4800. The value in the Demand Actual Effort field is displayed as 24 hours.
- If the resource rate for demand task is derived from the default labor rate (Scenario 2), the value in the Demand Actual Cost field is displayed as $3600. The value in the Demand Actual Effort field is displayed as 24 hours.
- If the resource rate for demand task is derived from the default system property (Scenario 3), the value in the Demand Actual Cost field is displayed as $1200. The value in the Demand Actual Effort field is displayed as 24 hours.