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PPM Insights: Surviving-to-Thriving, Taking the Mystery out of Financial Planning – Part 4 (Managing Rates)

By dobka03 posted Apr 14, 2017 08:35 AM

  

Hi PPM practitioners – welcome back! My last two blogs covered the essentials of CA PPM Financial Planning setup (framework and classifications). In this post, I’ll review the cost/rate matrix and the basics of its role in financial planning.

The cost/rate matrix (referred to by many as the rate card) defines the rate at which resources should be costed in the financial plan and costed/billed in financial transactions. As noted in my blog on basics, this can be as simple as setting up a single blended rate for all resources. It can also be broken out by different rates based on factors such as the role of the resource (business analyst, developer), type of resource (employee, offshore contractor), where the resource is located, standard time vs. overtime, capex/opex, etc. Regardless of the level of granularity, most CA PPM customers use a fully loaded blended rate for employees and actual rates for contractors. (Fully loaded blended rate is accounting language for a rate that includes employee wages and the full burden of other employee costs such as taxes and benefits.)

Rates by CriteriaMatrix Types

CA PPM supports separate matrices for labor, equipment, material, and expense type resource rates, including cost and revenue differences. Unless there is a compelling reason otherwise, most organizations use a single matrix for all resource types, including cost and revenue differences (simplifies maintenance).

Rates

Three rate fields are included in a cost/rate matrix:

Rate: The billing rate used to calculate total revenue in financial plans and chargeback transactions. If revenue/chargeback isn’t used, set as 0 or make it the same as the actual cost rate.

Standard Cost Rate: Not used in CA PPM, but can be used for custom reporting (e.g. compare FY original planned rate vs. current rate).

Actual Cost Rate: The rate used in deriving the planned cost of the resource in CA PPM financial plans and the actual rate applied to financial transactions for the resource (if not provided on the transaction).

Cost/Rate Matching Criteria

The assignment columns in the matrix define the criteria used for matching the correct rate/cost in financial planning and transaction processing. Up to 10 of the following fields may be used in the matrix as matching criteria. (The most two common are in bold.)

Rate Criteria OptionsOther categories frequently used for matching include Resource Class (for breakout by labor type), Input Type Code (for designating standard time vs. overtime or billable vs. non-billable), Cost Type (for differentiating capex vs. opex rates), and Department/Location (for differentiating rates by business unit or region).

Cost/Rate Dates and Order

The first two columns in the matrix define the effective from and to dates for the rate. This enables you to set up new rates in advance without removing or revising current rates (helpful with annual planning in advance!). Note: Changing a rate does not impact financial transactions that have already been processed. CA PPM’s WIP adjustments feature makes provision for recalculating prior posted transactions if needed. Re-populating an investment’s financial plan, on the other hand, always uses the latest rates.

The order of the columns is important. CA PPM evaluates columns from left to right to qualify the correct match. For example, if Role and Investment are used (as per below), the rate for all resources with the role of developer in 2017 is $150/hr., except developers on project PR1005 (an exception project) are $0/hr. In 2018, all developers will be $155/hr. The asterisk (*) serves as a wildcard for all other conditions.

Rate Example

Non-labor type resources (hardware, travel, etc.) can be included in the matrix, but a more common practice is to manually estimate in financial plans for forecasting purposes, and include actual cost at time of financial transaction entry (since such rates are typically not standardized).

For external contractor resources, a common practice is using Resource Class and a general/blended planning rate, with actual rate entered for financial transactions.

Investment Setup

Linking the cost/rate matrix is part of financially enabling investments. If financial transactions are entered without rate and cost, CA PPM looks for the rate/cost in the investment's designated cost/rate matrix. You can default matrices at the investment level, entity level, and/or system level. CA PPM first looks for and applies matrices at the investment level, then at the entity level, and then system level. If financial transactions are entered with a rate/cost, these are used instead of rates in the matrix.

Coming Soon

In my next blog, I’ll cover CA PPM cost and budget plans.

In Case You Missed It

Taking the Mystery out of Financial Planning – Part 1 (The Basics)

Taking the Mystery out of Financial Planning – Part 2 (Financial Framework)

Taking the Mystery out of Financial Planning – Part 3 (Classifications)

Readers interested in more detail around CA PPM Financial Planning can check out DocOps. I encourage you to participate in the best-in-class CA Communities site, where you have access to your peers, events and support. You can also reach out to CA Services for information about CA PPM and individualized business outcome references and analysis. Feel free to post in the comments section of this blog or contact me directly via email and Twitter @kdobsonppm.

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