Company expenses such as Auditing Costs , Supervision , Office supplies building rent and maintenance are elements of Overhead rates.
Does it mean Overhead rates are nothing but Indirect Costs ?
Tue, 05/08/2012 - 12:49
Overhead costs= Indirect costs
Salary of staff is direct costs
where salary of executive is overheads to projects.
Tue, 05/08/2012 - 13:04
On the "Accounting" term as sspawar said, YES it is.
But sometimes there could be some kinds of issues. I will give you guys a situation.
If a contracting company won a lumpsum contract, lets say 100M dollars project, and all expenses including office suplies, operations, transport, salaries, and those that are directly for the production of the deliverables are all charged to that 100M, in this case, would there be indirect cost to the project?
Just for brain storming purposes he he he!
Tue, 05/08/2012 - 14:09
Direct costs are those for activities or services that benefit specific projects, e.g., salaries for project staff and materials required for a particular project. Because these activities are easily traced to projects, their costs are usually charged to projects on an item-by-item basis.
Indirect costs are those for activities or services that benefit more than one project. Their precise benefits to a specific project are often difficult or impossible to trace. For example, it may be difficult to determine precisely how the activities of the director of an organization benefit a specific project. Indirect costs do not vary substantially within certain production volumes or other indicators of activity, and so they may sometimes be considered to be fixed costs.
It is possible to justify the handling of almost any kind of cost as either direct or indirect. Labor costs, for example, can be indirect, as in the case of maintenance personnel and executive officers; or they can be direct, as in the case of project staff members. Similarly, materials such as miscellaneous supplies purchased in bulk—pencils, pens, paper—are typically handled as indirect costs, while materials required for specific projects are charged as direct costs.
Costs usually charged directly
Costs either charged directly or allocated indirectly
Costs usually allocated indirectly
Tue, 05/08/2012 - 14:32
Pawar Ji – PMI would NEVER say salary of executive as overhead. A company cannot sustain without executive and without executive signature, neither any project can be bid nor will you get your salary. You have to understand the organization pyramid structure…Google it and read.
I completely understand the good relation we people have with our executive :). They are ofcourse an overhead in reality because they draw 10 or even more times salary than a project manager and do nothing except meetings and signature, but they are billable for the project. Their signature and decision making power can totally change the fate of the project….they are that powerful and hence paid that high.
As rightly copied from WIKI, you see various example of indirect cost, it does not talk about salary of executive….I hope you understand now why. Right?
Tue, 05/08/2012 - 16:07
please refer p 169 and 174. it says some thing about Direct and indirect Cost.
Indirect cost means overheads.
please read topics on Direct and Indirect cost. EVen this wikipedia topic is sufficient to understand.
Let me elaborate in perspective of PMI/ PMP/PMBOK:
program manager is concerned with many projects , it celebrates its own office.
when you are prepare a budget or estimate as a PM, for your upcoming project Phase what you will consider in Direct cost.
what you have to consider as overheads
Though I am not a professional article writer, perhaps you may understand later discription better.
Tue, 05/08/2012 - 17:20
Pawar Ji – I have objection with the word salary and nothing else. Salary cannot be part of indirect/overhead. I am not sure how much project management experience you have, have you ever worked on Staffing Management Plan in real life? If no, then understand, Say for a project “A” project labor cost is 100% allocated to PM and his full time resource (FTE). The program manager might just be allocated say 30%, then the portfolio manager say 10% and then the executive say 3%. When you add amount for these, it becomes the project staff cost and hence its included in Staffing Management Plan. Do you notice percentage allocation for executive, here its just 3%. Executive salary is combinations from such many projects where he is billed for from the client and this is always a direct cost.
See the various example you have copied from WIKI for indirect cost, if you apply your common sense, do you feel salary can be an indirect cost?
Tue, 05/08/2012 - 17:44
Once you will read the defination of direct and indirect cost, you can understand this %age part is called as indiect cost(overheads)
You definite would be aware of that at the end of a discriptive estimate whenever in terms of percentage of total cost or a lump sum amount , those are the overheads. it is the same.
because you cant assess it you cant fully add it, the meaning is being fulfilled it is indirect cost.
Dont forget this will be added definitely but it is termed as a indirect or overhead.
the main fundamental part is that - staff is completely and directly a part of a project while executives are indirectly and partially part of a project.
so it is how clear you may better know.
Tue, 05/08/2012 - 17:56
Here is what PMBOK says -
Indirect costs are those costs that cannot be directly traced to a specific project and therefore will be accumulated and allocated equitably over multiple projects by some approved and documented accounting procedure.
For me the most important words are “cannot be directly traced” and nothing else. Salary is ALWAYS directly traced and fixed. Whether you see percentage component as 100% or 3%, it’s traceable. What is not traceable are – internet bills, electricity bills, telephone etc (as you see various example from WIKI)
I also tried my best to explain you through staffing management plan and the resource cost for the project. I have made my points, now it’s up to you to believe it or not.
Tue, 05/08/2012 - 19:10
why shouldn't we say sweet dream, is better. i dont know wat is ur tme zone.
you have stuck on salary of executives.
If you are heading a PM office , how you can trace a Program Mgr office expenses. how you can trace what part will be only applicable for particular budget, it is just an %age head/overhead.
you hav to include as a part as a overhead for your project.
Salary of executives is an example. it will be by the time and fundamentally be a part of that non tracible expenses.i mean to say if you come to know any how that cetain amount is his salary, then how will you fix that this particular budget have this much %age. its all approximtion and hence indirect cost.
It si my opinion, my view,
I do not insist you and I like to be convinced let the matter open and incomplete, time will define for us.
Wed, 05/09/2012 - 06:23
Very nice brainstorming dudes... :-) hehe
Well, i agree with saket his points are true, and also sspawar is true that indirect costs = overhead costs, especially in accounting terminology. If you notice in my "brain storming" post, i emphasized one situation where ALL EXPENSES OF THE OFFICE IS CHARGED TO THAT 100m $ PROJECT.
In logic and essence, i would say that ALL EXPENSES ARE DIRECT COST TO THE PROJECT, while there is a difference when i say, WHAT ARE THE DIRECT COST TO PRODUCE THE DELIVERABLES.
Anyways, let there be peace upon both of you dudes, he he! you had a very nice brainstorming here..
Mon, 07/02/2018 - 05:14
Yes they can be considered as the indirect cost of the products by any vendor as these have to be paid latter by the company. https://www.assignmentgeek.com.au/ explains this issue with real world examples from the different countries and suggests some solution.
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