how to calculate timely rates in software industry

8/8/2019 How to Calculate Timely Rates in Software Industry

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HOW TO CALCULATE THE

COST OF TIME UNITSIN SOFTWARE INDUSTRY

By; Alaa S. Al-Agamawi20 Oct. 2009

cost standards for Egyptian software SME s companies


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Objectives (Why cost of units) Calculating the timely rate costs in Software companies

represents an important corner stone in Any business improvement process for our companies.

More cooperation between our members.

Future task forces to talk about best practices. So we need to

Having a well-thought-of methodology.

Contributing together to apply this methodology in order tocome up with reliable results.

Disseminating the results to all members.


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Approach Forming a task force that can come-up with a good estimate for the

cost of person/hours, person/days and person/months for different

software activities. Accepting some approximation in the beginning provided that there

should be continuous future refinement.

Forming a questionnaire that it is to be distributed to all members

and even none-members. Gathering data in an anonymous way that preserves companies

confidentiality.

After this, we should make many awareness sessions to all stakeholders to evangelize our findings.

Each of us can also use the findings in enhancing his companys ownperformance (participants or everybody).


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Agenda P&L Statement

Why costing?

Billable and non-billable hours

Software Industry a time dependant industry

The Editors desk

Dairy Farms and Cheese Factories Days and hours in a typical month

Net salary vs. Gross salary

Indirect cost

Software subsectors Whats next?


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P&L Statement Profit is the spirit of any

business entity, without whichit can never grow and wouldeven be subjected to manyproblems.

Cash flow is a killer.

Keywords

Revenue

COGS

Gross Profit

Net Profit

e a n ng pos ve cas owthat covers at least a periodof three months shouldalways be consideredamong the highest priorities.

P&L statement, Cash Flowstatement will represent agood indicator for yourcompany financial health .


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Why Costing? When working in more than

one project, how are you goingto tell about the profitability ofeach project?

Projects that costs more than itearns means that ou are

subsidizing a bad customer. Inother words, you are makinggood profit from a project,then losing that profit onanother project.

Without costing, how are yougoing to calculate theadequate motivation forAchievements?


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Billable and none-billable hours You do not get money out of

all of your staff/activities.Some gets money andothers dont.

How are you going to pay or your accountant

finance your marketingcampaigns

Your top management, i.e.the human brain! 6% of body weight 20% consumption of resources

(sugar & oxygen)Keywords

Billable

None-Billable


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Software Industry A time dependant industry

In a typical mass-

production commoditymanufacturer enterprise;

90% of the cost is NOT

time dependant. In a typical software

company; things are

reciprocal.


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The Editor Desk

For journalists, financial

auditors, lawyers, etc.,there is always a non-

negotiable deadline (e.g.

8pm to deliver articles). In software, we lack such

editors desk.


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Dairy farms and Cheese factories

Software service providers arelike a dairy farm, they pay forproduction cost even of there isno projects.

Ready-made productsmanufacturers can en o an

elongated period beforedisposing milk on the river.

For the first group, Gapsbetween projects can exhaustall profits.

Even in ready-made productcase, Different tasks and theirinternal dependability (AdamSmith) will result waste ofproduction time also.

Keywords

Gaps

between

Projects.

Redoing


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How many days in a typical month,

and how many hours?

Professional working days per year

Regular Gregorian Year 365

minus actual

Weekends 104 261

National Holidays 13 248

Annual Vacation 30 218

Training and HR Development 20 198

Assume 10% of the

total available time

Gaps between Projects 20 178

Assume the industry

standard 10%

Number of billable days per month 15

Number of working hours per month 89

Assuming 6 hours per

day (World record is

6.75)


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Who pays for the OFF-HOURS ?

In a monthly contract, the customers pays for

the week-ends and national holidays(remember that in most cases you are the

.

In daily rate contracts, you pay for all off-

days.

In hourly rate contracts, you pay for all off-hours.


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Net Salary (take-home) and Gross

Salary (what company pays)

Direct labor cost:

Take home salary

Social Insurance

Medical Insurance

Net SalarySocial

Insurance Payroll Tax TotalPercentageof Increase

$750 $279 $0 $1,029 137%

$1,000 $279 $0 $1,279 128%

$1,500 $279 $100 $1,879 125%

Payroll taxes

, ,

$2,500 $279 $300 $3,079 123%

$3,000 $279 $400 $3,679 123%

$3,500 $279 $500 $4,279 122%

$4,000 $279 $600 $4,879 122%

$4,500 $279 $700 $5,479 122%

$5,000 $279 $800 $6,079 122%

$5,500 $279 $900 $6,679 121%

$6,000 $279 $1,000 $7,279 121%

Do not forget

Medical Insurance

Bonuses

Correction factors


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Indirect Cost

Place

Equipments

depreciation.

Technical

Total Cost per Day Total Cost per Hour

NetSalary

DirectCost Min Max Min Average Max Min Average Max

$750.0 $1,028.8 $1,543.2 $2,572.0 $104.0 $138.7 $173.4 $17.3 $23.1 $28.9

$1,000.0 $1,278.8 $1,918.2 $3,197.0 $129.3 $172.4 $215.5 $21.6 $28.7 $35.9

$1,500.0 $1,878.8 $2,818.2 $4,697.0 $190.0 $253.3 $316.7 $31.7 $42.2 $52.8

At a glance

Factor that isNOT LESS

THAN 1.9 and

up to 3.2

Coaching.

Supervision

HRD

Management

$2,000.0 $2,478.8 $3,718.2 $6,197.0 $250.7 $334.2 $417.8 $41.8 $55.7 $69.6

$2,500.0 $3,078.8 $4,618.2 $7,697.0 $311.3 $415.1 $518.9 $51.9 $69.2 $86.5

$3,000.0 $3,678.8 $5,518.2 $9,197.0 $372.0 $496.0 $620.0 $62.0 $82.7 $103.3

$3,500.0 $4,278.8 $6,418.2 $10,697.0 $432.7 $576.9 $721.1 $72.1 $96.2 $120.2

$4,000.0 $4,878.8 $7,318.2 $12,197.0 $493.4 $657.8 $822.3 $82.2 $109.6 $137.0

$4,500.0 $5,478.8 $8,218.2 $13,697.0 $554.0 $738.7 $923.4 $92.3 $123.1 $153.9

$5,000.0 $6,078.8 $9,118.2 $15,197.0 $614.7 $819.6 $1,024.5 $102.5 $136.6 $170.8

$5,500.0 $6,678.8 $10,018.2 $16,697.0 $675.4 $900.5 $1,125.6 $112.6 $150.1 $187.6

$6,000.0 $7,278.8 $10,918.2 $18,197.0 $736.1 $981.4 $1,226.8 $122.7 $163.6 $204.5


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Software Subsectors

Multi-Media

Application Development Content Development

System level programming

Skilled personneldeployment services

Technologies research and

development


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Software Subsectors (continued)

Market price for each

subsector differs.Percentage of contribution

for each skill level varies.

50%

20%

20%

10% Art work Designer

Flash Developer

Subject MatterExpert

Project Manager

Multi Media

10%20%

20%

10%

20%

15%

JuniorDeveloper/tester/support

Developer

SeniorDeveloper

Team Leader

Application

Development

5%10%

30%15%

20%

10%10%


Developer

SeniorDeveloper

Team Leader

System Level

Programming

5%

30%

20%20%

20%

5%


Developer

SeniorDeveloper

Team Leader

Research &

Development


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Multi-Media

Average Project Participation

Art work Designer 50% $52.02 $208.89 $8.67 $34.81

Flash Developer 20% $25.86 $124.00 $4.31 $20.67

Subject Matter Expert 20% $50.13 $204.90 $8.36 $34.15

Project Manager 10% $37.20 $142.90 $6.20 $23.82

Overall Project Average cost EGP165 EGP681 EGP28 EGP113

EGP423 EGP70

Just for the sake of Statistics

Daily cost in US$ 5.600 $29.50 $121.55 $4.92 $20.26

Daily Cost in Euro 8.008 20.63 85.00 3.44 14.17

Monthly Cost in EGP $2,450.70 $10,097.00

Monthly cost in US$ 5.600 $437.63 $1,803.04

Monthly Cost in Euro 8.008 306.03 1,260.86


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Application DevelopmentAverage Project Participation

Junior Developer/tester/support 10% $12.93 $62.00 $2.16 $10.33

Developer 20% $50.13 $184.68 $8.36 $30.78

Senior Developer 20% $74.40 $245.35 $12.40 $40.89

Team Leader 10% $55.40 $153.01 $9.23 $25.50

Designer 20% $147.21 $366.70 $24.54 $61.12

Analyst 15% $128.61 $305.36 $21.44 $50.89

Project Manager 5% $48.94 $101.79 $8.16 $16.96

Overall Project Average cost 100% EGP518 EGP1,419 EGP86 EGP236

EGP968 EGP161


Daily cost in US$ 5.600 $92.43 $253.37 $15.41 $42.23



Monthly cost in US$ 5.600 $1,371.11 $3,758.39



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System Level Programming



Developer 10% $25.07 $92.34 $4.18 $15.39


Team Leader 15% $83.11 $229.52 $13.85 $38.25

Designer 20% $110.81 $366.70 $18.47 $61.12

Analyst 10% $55.40 $203.58 $9.23 $33.93

Project Manager 10% $61.47 $203.58 $10.25 $33.93

v r r c v r g c ,

EGP974 EGP162


Daily cost in US$ 5.600 $81.06 $266.92 $13.51 $44.49






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Research and Development



Developer 5% $12.53 $46.17 $2.09 $7.69


Team Leader 20% $110.81 $306.03 $18.47 $51.00

Designer 20% $110.81 $366.70 $18.47 $61.12

Analyst / Subject Matter Expert 20% $110.81 $407.15 $18.47 $67.86

Project Manager 5% $30.74 $101.79 $5.12 $16.96

,

EGP1,042 EGP174


Daily cost in US$ 5.600 $87.02 $284.98 $14.50 $47.50






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What is next? Contributing in the task force that is to work on

Coming up with the final version of the questionnaire. Evangelizing the concept to all members and inviting

them to participate.

Collects the data and apply the statistical methods. Publishing the results.

Thank you

how to calculate timely rates in software industry

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