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Ideas for handling "regret" costs? RRS feed

  • Question

  • I'm wondering if there are some ideas/guidance for how to model so-called "regret" costs in a Project MPP?  We're buying materials and equipment and the purchase contract specifies not only the payment schedule (based on milestone dates and/or task completion), but also the amount that we sacrifice should we cancel the order early.  We'd like to be able to view the outgoing cash (payments) by time (cashflow), but also the state of total "regret" as a time series.  I'm about to put into the plan individual tasks for each scheduled payment.  I also want to handle regret costs, e.g. the costs we would incur if we cancel the contract at any point along the timeline.  I'm looking for a way to easily handle configuring this in the Project model to keep as simple as possible. I fear this not really possible and will have to keep track of seperately.

    I can see how to use a custom cost field for scheduled payments.  However, some of the the items are bought with an arrangement that we don't pay anything until delivery, say 6 months after order--but the regret cost accumulate from zero at the moment of delivery to the full purchase cost at the scheduled delivery date.  I could put in, say 6 tasks to model it on a monthly basis and show the regret increasing in say the Cost9 field.  But that would mean 6 tasks. Multiplying that by the number of items ordered starts to become real work to keep it all maintained (and understood).

    Is there a better way?


    --rms www.rmschneider.com
    Thursday, September 1, 2011 5:27 AM

Answers

  • Just to add a thought or two to Tom's idea.  I do not have the entire solution visualized, but maybe this idea will be useful.

    Perhaps you could model one task for each purchase and make it effort driven.  Assign two resources to it -- one representing your intended purchase and one representing the regret.  Set their hourly rates to the total contract value or the total potential regret.  Make total planned work equal 1 hour (so as not to overly impact "real" work calculations in the schedule).  Contour the work to match the contractual terms.  Initially assign all the work to the "intended purchase" resource.  As the project progresses, record actuals against the two resources as appropriate. Actuals are recorded as fractions of an hour.

     

    ... for what it's worth.


    Reid McTaggart Partner DeltaBahn LLC
    • Marked as answer by Rob Schneider Friday, September 2, 2011 8:14 AM
    Thursday, September 1, 2011 2:25 PM

All replies

  • I see your “regret” cost is fixed Rob, but what you’re effectively paying for is a work rate at the other company so could you not model the resource as a “work” item that paid for your material after a set period?  Could work if the regret rate was linear but maybe not if it ramped up closer to the delivery date.

    Cheers,

    Tom.

    Thursday, September 1, 2011 8:07 AM
  • While my example was linear ... the point there was to show increasing regret without payment ... many of the schedules for regret are not linear and have varying terms. (Negotiated without regard to how we would ever keep track of it!).  

    I like the idea of work rate and will experiment as perhaps a way for the project team to "model" the regret for management purposes and let the accountants handle the exact regret if they want ... 


    --rms www.rmschneider.com
    Thursday, September 1, 2011 8:12 AM
  • Just to add a thought or two to Tom's idea.  I do not have the entire solution visualized, but maybe this idea will be useful.

    Perhaps you could model one task for each purchase and make it effort driven.  Assign two resources to it -- one representing your intended purchase and one representing the regret.  Set their hourly rates to the total contract value or the total potential regret.  Make total planned work equal 1 hour (so as not to overly impact "real" work calculations in the schedule).  Contour the work to match the contractual terms.  Initially assign all the work to the "intended purchase" resource.  As the project progresses, record actuals against the two resources as appropriate. Actuals are recorded as fractions of an hour.

     

    ... for what it's worth.


    Reid McTaggart Partner DeltaBahn LLC
    • Marked as answer by Rob Schneider Friday, September 2, 2011 8:14 AM
    Thursday, September 1, 2011 2:25 PM
  • Reid,

    I like that. I'm going to experiment and give it a shot.  We're not using the hours in this model, so with this approach we an simply ignore the hours part.  Like it.


    --rms www.rmschneider.com
    Friday, September 2, 2011 8:14 AM