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A DETAILED LOOK AT THE PHASES OF COST 167

Tip There is a general misconception that overtime work
costs more than regular time work. This is not necessarily accu-
rate. For instance, if a person’s regular billing rate were based
on a wage cost of $15/hr plus overhead of $15/hr plus $3/hr
profit, we would bill $33/hr for normal time. If that individual
was paid a 50 percent premium for overtime, the billing rate
would be $24.75/hr ($22.50/hr plus $2.25 profit). There is no
need to include a charge for the overhead, which is covered by
the charges for the first 40 hours per week.

In this example, OT for Alice was billed at a 10 percent pre-
mium. Although Alice gets a 25 percent premium in pay for
OT, the overhead costs for OT are lower because most OH
charges are already factored into the base (40 hr) rate. In a
high OH environment, OT hours can actually cost less than reg-
ular hours.

A Detailed Look at the Phases of Cost Management

Earlier, we outlined the phases of cost management. Let’s take a closer look at
each of these.

Proposal or Pre-planning Phase There are too many variations on how organiza-
tions go about dealing with proposals and opportunity management to be able to
cover in this book. Much of this is dependent upon what kind of business you are
in, whether your projects are internal or external, for profit or expense recovery,
and so on. Yet this phase is perhaps the most important. It is very difficult to
achieve widespread stakeholder satisfaction (project success) if the project pro-
posal or preplan is flawed.

A proposal should not be a dream of what you would like to see happen.
Projects that must take three years to complete can’t be delivered in two years,
just because the customer asked for it and the salesperson agreed to it. Proj-
ects that must cost $2 million can’t be executed at a cost of $1 million, just
because that was as high as the client would go. Yes, these reductions in time
or cost can sometimes be made by reducing scope, increasing risk, reducing
quality, or any combination of these. If such project restructuring is invoked,
then it is important that these alterations be fully documented and the ex-
pected effect on time and cost be passed on to the project planning and bud-
geting phase.