Resource cost variance is one of the resource management KPIs you should definitely keep your eye on. This metric is usually expressed as a percentage value. It shows you the ratio between scheduled costs per project team member and actual costs per team member.
How is that useful?
First of all, tracking resource cost variance allows you to monitor the profitability of your project. It’s especially crucial when you’re working based on a fixed budget. What happens when you see that your team members generate more costs than expected? You can implement necessary optimizations to make sure the project doesn’t affect your bottom line negatively.
Companies that operate on time and material budgets should also check the resource cost variance regularly to be able to react timely to worrying patterns.
Comparing estimated and actual costs can also give you some valuable insights regarding the project estimation process at your company. Sure, estimates will never be spot-on, but some teams tend to grossly underestimate certain aspects of their projects. Patterns like these should be evident when you compare the resource cost variance of different roles within your project team or different project stages.
The simplest formula will be to divide your team’s actual costs (tracked hours multiplied by employees’ hourly costs) by the scheduled costs (project estimates multiplied by the hourly costs). Now you see how much money you should charge your client versus how much you thought you would charge them. If you want to dig deeper, you can also differentiate between internal costs—the money you pay to your team members + administrative costs—and the money you receive from the client. This way you will be able to pinpoint the profit your organization generates.
As you can imagine, in order to get reliable data regarding your team’s actual costs, you should be using employee time tracking software. Now, we’ll show you how to calculate resource cost variance easily using a complete resource management app—Teamdeck.
Teamdeck is resource management software with powerful reporting features available to all users—all you have to do is start an account here. You can test Teamdeck out for free for 7 days. After a free trial, the cost per team member is $3.99 which includes resource scheduling, time tracking and leave management system features.
Your Teamdeck account is ready? In order to create a meaningful report about your project teams, you need to ask them to start tracking their time using Teamdeck’s mobile time tracking app or entering their time entries via the web app.
However, if you just want to see how such a report works, you can quickly set up a demo account, filled with sample data. Simply click on “Play with sample data” when you’re in the Organizations section of Teamdeck.
Whether you’re working on your team’s real data or on sample data points, the next steps are the same. Head to Reports in the upper menu and click the plus icon in the lower right corner. Today, we’ll show you how to create a resource cost variance report from scratch, so click on “create custom”.
Next, name your report and set an appropriate date range.
The way Teamdeck’s reports work is that you decide what they should consist of. You can generate different types of charts and tables with interactive fields. For starters, let’s create a bar chart that will give us a good idea of how estimates and actuals compare.
Click on the plus icon in the corner and pick the bar chart. By default, it will consist of bars illustrating your teams’ bookings (scheduled hours), timesheets (tracked hours), available hours, and vacation hours. We only need to compare bookings and timesheets so head to Metrics and uncheck vacations as well as availability.
Your table should look like this:
Of course, if you have many people on your team, the bar chart will be much less readable. Resource cost variance is usually calculated for a single project, so you can filter other projects out. Click on Filters and add an appropriate one.
Click apply and enjoy a chart filled only with relevant data. Looking at this chart you can see which employees logged more hours than expected and which people stayed below their estimated hour count. However, in order to get precise numbers here, it’s better to add an informative table.
Click on the plus icon in the corner and add a table. You can repeat some steps from the previous chart: uncheck the unnecessary metrics (leave only timesheets and bookings for now), and filter the relevant project.
You may also want to change the grouping in data in your table. By default, it will be grouped by projects first, and then by team members. To change that setting click on Grouping and switch data blocks around. You can actually remove “Projects” altogether if you’re using a filter.
In our example report, the final grouping looks like this:
Now that your table consists of two data columns (Bookings and Timesheets), it’s time to add more columns representing the estimated and actual costs. First of all, you need to add a column for your team’s hourly costs. Click on Metrics and then on “Add custom” -> “Add custom values column”. Name your new column (e.g. “Hourly cost”) and select the currency data format.
When you apply these changes you will see that an empty column has been added to the table. It works similar to an Excel spreadsheet—click on any cell to enter data there.
Once your team’s hourly costs are in place, you can add columns that will automatically calculate their total estimated costs and actual costs. Again, go to Metrics and click on “Add customs”, but now pick “Add custom calculation field” since we want Teamdeck to calculate the result on its own. Name the column, pick the currency data format and enter the formula.
For scheduled costs the formula will be as follows:
= (Bookings: Time / 60) * Custom values: Hourly cost
For actual costs:
= (Timesheets: Time / 60) * Custom values: Hourly cost
Once you start typing in a variable, Teamdeck will suggest available options.
Currently, you should have 5 columns in your table, including two new ones for estimated and actual costs.
One last column we should add to the table is the one this report is all about: resource cost variance. To calculate it, let’s create another custom calculation field column. This time you should pick the percentage data format and enter the following formula:
= (Custom formulas: Actual cost / Custom formulas: Scheduled costs)*100
Note: if your columns are named differently, you should adjust the formula to reflect that.
There you have it, a new column will appear in your table with the resource cost variance value for each of your employees working on a given project.
If the value is over 100%, it means that this team member logged more time than estimated. If the value is lower than 100%, it means that the initial estimate wasn’t reached.
One last thing you might want to do is to alter the way the “total” row is calculated. By default, it’s a sum of all the values in a given column. An average value would be much more useful here. The final row is clickable and editable like a spreadsheet cell so you just have to enter the following formula:
= average(nested(Group: People, Custom formulas: resource cost variance))
Software houses and creative agencies from different continents use Teamdeck to plan and monitor their teams’ work. If you think your organization could also benefit from effective resource management, definitely give us a try. We encourage you to schedule a call with Aniela, our Customer Success Expert, who will show you around the app and help get your team on board smoothly.
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