Lesson 19 - Managing Overheads In Primetric. Types And Formulas

Table of contents

Overview
Definitions
Overheads’ Types In Primetric
Adding Organization Overheads
Settling Organization Overheads
Adding Project Overheads
Settling Project Overheads
Organizational, Project, Department Overheads In Financial Reports
     Include Organization Overheads
     Formula - How Is It calculated?
     Include Unutilized Time Costs In Project Overheads
     Formula - How Is It calculated?
     Department Overheads. Checkbox: Organization Overheads Distribution By Department
Department Overheads Case Study

Overview

In this lesson, I will show you how to create a company budget and settle organization overheads to forecast your company and projects' profitability at different cost and income levels (1st, 2nd, 3rd profitability degree).

Definitions

Overhead - the additional cost of running a business. Primetric's overheads are divided into organizational and project overheads and cost and revenue overheads (also check: Organization Overhead and Project Overhead).

Organization Overhead - general costs and revenues, either fixed or one-time, generated by a specific category within a given time. Managers with organizational and financial access define them.

Project Overhead - additional costs required to complete a project that does not involve direct work on an operation. Project overhead typically includes subscriptions, software licenses, business trips, and workshops.

Department Overhead - overhead assigned to a given department regardless of the division into projects. It applies to companies that have branches in different cities and, as a result, separate budgets. In Primetric, this type of overhead is implemented through the option available in the Administrator Role Account: Checkbox Organization Overhead Distribution By Department.

Overheads’ Types In Primetric

Overheads encompass organizational and project-related aspects and are one-time and recurring occurrences. They can be both cost-related and revenue-related. Cost-related overheads are associated with our expenditures, while revenue-related overheads come into play when, for instance, leasing corporate parking to an external party or providing services in a body-leasing model. In addition to the types listed below, remember that each (like any other financial data) can exist in three states: Scheduled, Not Settled, and Settled.

Therefore, depending on the area covered by overheads, we distinguish:

• Project
• Organization
• Department

Taking into account status, we distinguish three overheads’ statuses: 

• Scheduled
• Not Settled
• Settled

In terms of quantity, we distinguish overheads that are:

• One-Time
• Recurring (repeatable)

In financial terms, we distinguish overheads related to:

• Revenue (which is related to earnings in the company)
• Cost (which involves expenses)

When adding individual types of overheads in Primetric, the main distinction is the division into project and organizational overheads. We will add organizational overheads in another place (and there we will set appropriately whether they should be scheduled, one-time or cost) and similarly with project overheads.

Adding Organizational Overheads

Organizational overheads can only be added by assigning them to existing categories. If your organization does not have predefined categories, create one by following the instructions below:

You will encounter the following pop-up window. Take note of the "Department" field - it determines whether the overhead amount will be included in the overall finances of the entire company or allocated to a specific department. Then, choose the appropriate option in the "Department" field. 

Note ▶ It is good practice to set one year for this type of overhead.

Next, you will see the following view:

Depending on whether it is a one-time or recurring overhead, cost-related or revenue-related, choose one of the schedule buttons in the respective location.

Another pop-up window will appear:

1. Enter the amount and assign a prefix, which is the name that will be displayed before the amount in recurring payments. 
2. Set the time frame and the day of the month when the overhead will be calculated.
3. Choose whether the overhead should appear in the "Not Settled" state (requiring manual settlement) or "Settled." 
4. Create.

Settling Organizational Overheads

You can settle organizational overheads in two places.

Alternatively:

Adding Project Overheads

To add project overheads, navigate to the specific project.

You will see a view that is familiar to you from the Overheads Tab. The process of adding overheads remains precisely the same.

Settling Project Overheads

To settle project overheads, navigate directly to the Project Profile. The path is as follows:

You can only settle a project overhead once it is committed. Therefore, check whether the overhead is committed by locating it in the Scheduled section.

If it’s not: 

If the overhead is committed:

Organizational And Project Overheads In Financial Reports

The overheads described above will be accounted for in your organization's financial reports:

• Profitability Report 
• Projects finances Report 
• Project Report (Go To Projects Tab ▶ Report Section)

If you go to Projects Finances in the Report tab, you'll see two checkboxes:

They change calculations in your report. 

Include Organization Overheads

This checkbox lets you include organization overhead costs from a specific period (for scheduled and settled status) in the report, giving us information on whether you're earning on a specific project.

If you check the Include organizational overhead box, general overhead costs will be included in the project budget. The system considers how many hours your employees have billable scheduled/settled for this project and divides this by the sum of all hours billable scheduled/settled for this period.

Formula - How Is It calculated?

Include Unutilized Time Costs In Project Overheads

Below the organizational overhead checkbox, another one allows you to include unutilized time costs in the overhead. In Primetric, unutilized time costs are all costs of employees not working on clients' projects and contractor costs for non-billable projects. Hiring and paying the remaining two employees is an unutilized time cost if your company has ten employees and only eight work on the project. This includes the working time of employees who don’t work at total capacity. For example, if all of your employees work, but their project utilization is 50%, the remaining unutilized time is considered an unutilized time cost.

Formula - How Is It Calculated?

Let's first take a look at how the unutilized time cost is calculated:

 When it comes to idle capacity cost, the formulas are as follows: 

And for the settled budget:

 The second box is quite simple to count:

Department Overheads. Checkbox: Organization Overheads Distribution By Department

If your company shares organization overheads per different departments, you can turn this option on. To do this, follow the instructions below:  

If we activate this button when the overhead category is not assigned to any department, the reports will not change. If a department has only one person assigned to it and incurs an overhead, that individual will bear the entire cost in financial reports. It will be distributed across only some of the departments.

If a cost is assigned to a department with no assigned employees, the cost will not be reflected in the company's finances.

Department Overheads Case Study

There are two departments in the company: NY and LA. If you do not check the Organization overheads distributed by department option, department overheads will be divided among all departments: NY and LA. If you check the checkbox, overhead costs will be shared between people only within the department to which they are assigned: NY or LA.

1. Log in to the Manager Role Account. Add Overhead by clicking Organization Tab and going to the Overheads Section. We assign it to a department, in this case: NY.

2. Go to the Administrator Account and click on the Settings Tab. Go to the General Section. There you will find the Organization overheads distribution by department option. We leave it unchecked.

3. Log in back to the Manager Role Account. Click Reports Tab and go to the Profitability Report. Do not check the Include organization overheads checkbox. We generate a report. We get the following results:

4. Now check the Include organization overheads checkbox and refresh the report. We will get the following results:

5. As we can see, the cost of Company Celebration that we assigned to the NY department was divided equally among all employees. Now let's go back to the administrator account using the path described in step 2. Check the Overheads distribution by department checkbox there.

6. Let's go back to the Manager Role and go to the Protitability Report. Let's generate it:

As we can see, Andre and Dalia's overhead rate has changed. Since department overhreads remain at the expense of specific departments, Andree assumes this cost.

Planning company overheads helps us better understand the state of our finances, additional costs incurred, and income. Although planning overheads may seem like an additional complication, they give a complete and accurate financial picture of our company, so due to precise budget planning.