Understand and select your overhead allocation rules for all your projects.
✅ First enter all your non-project-related fixed costs in the Costs > Overheads tab.
🔓 Permissions required
- Configuration
Team: Super Admin ⭐️
- Fixed cost entry
Team: Manage fixed costs
- Analysis of fixed costs
Team: View Revenue + View Financial Summary
| Reading time | 5min |
| Setup length | 1min |
| Steps | 2 |
Summary
I/ Setting up the situation
II/ Breakdown of overheads: At cost paid
III/ Breakdown of overheads: On time spent
I/ Setting up the situation
Tip: enter your overheads in advance so that you can set the parameters for allocating them.
See article How to add/manage overheads?
Once you've established your overheads, you'll need to select your allocation rules.
In order to understand these, let's put ourselves in a situation:
Let's take an overhead base of €1,000,000 spread over the year.
And an annual payroll of €100,000 divided between three employees:
- Employee A: €20,000 per year
- 20,000€ / 52 weeks / 39h = 9.9€ charged per hour
- Employee B: €30,000 per year
- 30,000€ / 52 weeks / 39h = 14.8€ charged per hour
- Employee C: €50,000 per year
- 50,000€ / 52 weeks / 39h = 24.7€ charged per hour
Let's also take 2 projects on which these employees have spent and entered time:
- Employee A who worked 10 hours on Project A = which gives us a cost of 99€
(10 hours x 9.9€ charged per hour) - Employee B who worked 10 hours on Project A = giving us a cost of 148€
(10 hours x 14.8€ charged per hour) - Employee C who worked 10 hours on Project B = giving us a cost of 247€.
(10 hours x 24.7€ charged per hour)
This gives us hours worked per project of :
- Project A: 20 hours or 247€ (Employee A 99€ + Employee B 148€)
- Project B: 10 hours or 247€ (Employee C 247€)
For a TOTAL of 30 hours or 494€ (Employee A 99€ + Employee B 148€ +Employee C 247€)
II/ Breakdown of overheads: At cost paid
Note: Remember to select this method from your Settings > Modules > Cost > Overhead calculation method > Select “At cost paid”.
As indicated, this allocation method is based on the cost charged to each project in relation to the total cost charged.
If we return to our situation, we have a loaded cost for each project of :
- Project A: 247€ (10h Employee A = 99€ + 10h Employee B = 148€)
- Project B: 247€ (10h Employee C 247€)
And overheads of €1,000,000.
With a total loaded cost of 494€, this gives us a percentage breakdown of overheads for each project of :
- Project A: €247 / €494 = 50% of overheads, i.e. €500,000 allocated to Project A
- Project B: €247 / €494 = 50% of overheads, i.e. €500,000 allocated to Project B
III/ Breakdown of overheads: On time spent
Note: Remember to select this method from your Settings > Modules > Cost > Overhead calculation method > Select “By time spent”.
This method is based on the time spent on each project in relation to the total time spent, and will break down overheads according to this time.
In this situation, we have a time spent on each project:
- Project A: 20h (10h Employee A + 10h Employee B)
- Project B: 10h (10h Employee C)
And a total time of 30h, based on €1,000,000 in overheads.
This gives us a breakdown of overheads by percentage of time spent of :
- Project A: 20h / 30h = 67% of overheads, i.e. €666,000 allocated to Project A
- Project B: 10h / 30h = 33% of overheads, i.e. €334,000 allocated to Project B
All done! 🎉
Now you know how to choose your overhead calculation method!