How costs are normalized in Replicon

Replicon can be set up to automatically calculate normalized hours and costs for specified users. Normalized hours can be viewed and exported to Excel using reports.

When setting up normalization rules to assign to users, administrators can choose:

• Whether hours are normalized hourly or monthly
• Whether CapEx hours are included first in normalization calculations (to ensure all possible CapEx hours are included as costs), and
• Whether time off is included in normalization calculations

Refer to Setting up cost normalization rules for more information.

Why might we need to normalize hours?

Normalization is needed when cost is calculated using an assigned hourly cost rate:

Cost = Hourly cost rate x Hours worked

But, the worker is paid a fixed amount (for example, a salaried employee). In these cases, if the employee works more hours than expected, costs do not increase, and hours must therefore be ‘normalized’ to reflect the actual cost amount.

Cost normalization is the conversion of actual hours worked to reflect actual cost amounts.

How are normalized hours calculated?

To normalize hours, actual hours worked are multiplied by a ‘normalization factor’ which is equivalent to:

Scheduled Hours / Actual hours worked

for a given time period. If the worker works fewer hours than expected, a normalization factor of 1 is assigned in all cases, as the actual hours worked can be used in cost calculations. Normalization factors must be between 0 and 1.

For example:

A salaried employee is assigned a work schedule of 8 hours per day, 5 days a week. Their assigned hourly cost is $50/hour. Their costs are set to be normalized weekly.

In a single week, they work 46 hours.

Normalization factor

= Scheduled hours / Actual hours worked

= (Hours per day * Number of working days in week) / Actual hours worked

= 8 hours per day * 5 days / 46 hours

= 40/46 (= 0.86957)

To calculate this employee’s actual cost for that week:

Actual normalized cost

= Actual hours worked * Cost per hour * Normalization factor

= 46 hours * $50/hour * 40/46

= $2001

FAQs

How are normalization factors calculated if a user is assigned a schedule with hours per day that vary depending on the day of the week?

In normalization calculations, Scheduled hours is the sum of the scheduled hours for all days in the week or month, as applicable.

Are non-project hours included in normalization calculations?

Yes, they are.

Related links

Setting up cost normalization rules
Viewing normalized hours and costs in reports
Setting up a project for costing
Tracking costs and billing for a client
How project costing works