Estimating Fees Overview

One of the most important parts of using Project Analyzer to effectively plan and track project resources is starting with accurate information at the beginning of the project. It is critical that project managers are able to create good estimates for project components, including fees that will cover project costs and still generate the desired profit. These values, once input into Project Analyzer, provide the data for generating the Budget Detail chart, shown here:

There are two basic planning methods for projects: top-down planning and bottom-up planning.

In top-down planning, the project fee is set first, then calculations are made for profit, non-reimbursable and reimbursable consultants and expenses in order to arrive at the amount of the fee that is available for labor.
In bottom-up planning, the amount required for planned labor is set first, then used as the basis for calculating what the project fee needs to be to cover the labor, consultants, expenses and profit.

You can use Project Analyzer to manage projects created using top-down or bottom-up planning. However, the methods used to arrive at the correct fee amount and amount available for labor vary depending on your planning method, as well as whether your firm uses net or gross profit. Following are the calculations that should be used to calculate project fees and the cost and profit amounts.

Some firms use the term "direct" instead of "non-reimbursable" when referring to consultants and expenses. In keeping with Project Analyzer terminology, the term "non-reimbursable" is used in the following scenarios.

Scenario 1: Gross Profit, Top-Down planning

Use the following calculation if your firm uses gross profit and top-down (fee first) planning:

To calculate the amount of the fee that is available for labor:

Fee - Gross Profit - Non-Reimbursable Consultants - Non-Reimbursable Expenses = Amount left for labor

Example:

Fee = $100,000

Non-Reimbursable Consultants = $20,000

Non-Reimbursable Expenses = $10,000

Profit percentage = 25%

Gross Profit = Fee * Profit percentage = $100,000 * .25 = $25,000

Using this information, the calculation to determine the amount of the fee left for labor is as follows:

$100,000 - $25,000 - $20,000 - $10,000 = $45,000 left for labor

Scenario 2: Net Profit, Top-Down planning

Use the following calculation if your firm uses net profit and top-down (fee first) planning:

To calculate the amount of the fee that is available for labor:

Fee - Net Profit - Non-Reimbursable Consultants - Non-Reimbursable Expenses = Amount left for labor

Example:

Fee = $100,000

Non-Reimbursable Consultants = $20,000

Non-Reimbursable Expenses = $10,000

Profit percentage = 25%

Net Profit = (Fee - Non-Reimbursable Consultants - Non-Reimbursable Expenses) * Profit percentage = ($100,000 - $20,000 - $10,000) * .25 = $70,000 * .25 = $17,500

Using this information, the calculation to determine the amount of the fee left for labor is as follows:

$100,000 - $17,500 - $20,000 - $10,000 = $52,500 left for labor

Scenario 3: Gross Profit, Bottom-Up planning

Use the following calculation if your firm uses gross profit and bottom-up (labor first) planning:

To calculate the fee amount:

(Planned Labor + Non-Reimbursable Consultants + Non-Reimbursable Expenses) * [100/(100 - profit % expressed as a whole number)] = Fee

Example:

Planned Labor (fromTeam tab)= $75,000

Non-Reimbursable Consultants = $20,000

Non-Reimbursable Expenses = $10,000

Profit percentage = 25%

Using this information, the calculation to determine the fee amount is as follows:

($75,000 + $20,000 + $10,000) * [100/(100-25)] = Fee

($105,000) * [100/75] = Fee

$105,000 * 1.33 = $139,650 Fee

The calculation used to arrive at the profit multiplier [100/(100-profit % expressed as a whole number)] must be used in bottom-up planning to account for the fact that the profit is taken off the top of the fee. Attempting to calculate the fee using the straight profit percentage and the planned labor value would result in a fee that is not large enough to cover both costs and profit.

Scenario 4: Net Profit, Bottom-Up planning

Use the following calculation if your firm uses net profit and bottom-up (labor first) planning:

To calculate the fee amount:

[Planned Labor * (100/(100 - profit % expressed as a whole number))] + Non-Reimbursable Consultants + Non-Reimbursable Expenses = Fee

Example:

Planned Labor (fromTeam tab)= $75,000

Non-Reimbursable Consultants = $20,000

Non-Reimbursable Expenses = $10,000

Profit percentage = 25%

Using this information, the calculation to determine the fee amount is as follows:

[$75,000 * (100/(100-25))] + $20,000 + $10,000 = Fee

[$75,000 * (100/75)] + $30,000 = Fee

[$75,000 * 1.33] + $30,000 = Fee

$99,750 + $30,000 = $129,750 Fee