Fringe, overhead and G&A costs are calculated based on the indirect cost formula defined in the various rows of the costing sheet. Each costing sheet row specifies:

• The base parameter or indirect cost "pool" which is normally a set of cost elements or other filter criteria for proposal costs
• Formulae for fringe, overhead and G&A costs. Note that these formula can be based on the base parameter, on each other (e.g. G&A is applied to base + fringe + overhead) or based on some other parameter
  • It is recommended to define overhead as base cost x ( 1 + fringe % ) x overhead % as opposed to defining overhead based on the formula result of fringe. This removes any co-dependency between these formula. The same is recommended for G&A (see below)
• An indirect cost key links the costing sheet row to a cost element. Each cost element typically has a single fringe, overhead and G&A rate and consequently refers to a single costing sheet row, via the indirect cost key
  • All costs elements sharing the same base pool can refer to the same indirect cost key / costing sheet row
  • If a single cost element has a variety of different indirect cost rates or formula within the same costing sheet, it is necessary to select the appropriate costing sheet row based on other criteria. Custom fields or tags are used in this scenario to ensure that only the costing sheet row for the current set of tag values is processed
• Whether the resulting indirect costs should be posted at a detailed or summarized level
  • Detailed postings for indirect costs results in up to three indirect cost postings for each cost item in each period which was generated e.g. 3 indirect cost postings for each year, month, resource group and task combination
  • Summarized postings group together indirect costs and post summarized indirect costs by WBS or cost pool, year and month. This approach limits the flexibility of indirect cost reporting but results in fewer cost model records with corresponding improvements in performance

Notes:

1. Detailed indirect cost postings are recommended if your database can handle the resulting volume
2. You must ensure estimators select appropriate tag values for any estimates with indirect costing sheet rows which depend on tags
3. All costs including indirect costs are rounded to the nearest cent. This can result in sub-totals for indirect costs being 1-2 cents different as compared to sub-totalling or calculating these costs in Excel with more than 2 decimal places. Technically speaking - indirect costs are calculated based on the direct cost for each resource group rounded to two decimals, using the unrounded fringe, overhead and G&A rates or costs for each resource (8 decimal places), so to mirror the same calculation in Excel you must calculate indirect costs using the resource-specific base cost with 2 decimals and the resource-specific rates or indirect costs with 8 decimals. You cannot calculate indirect costs in Excel on a summarized basis (e.g. by site or cost pool, or by fiscal year) and expect the result to exactly match how costs are calculated here (by resource-group, period etc.)

While there is no "one size fits all", the indirect costing formulae typically follow a pattern:

1. Fringe cost is the direct cost x fringe rate
2. Overhead cost is ( direct + fringe cost ) x overhead rate, or direct cost x (1 + fringe rate) x overhead rate
3. G&A cost is ( direct + fringe + overhead cost ) x G&A rate, or direct cost x (1 + fringe rate) x (1 + overhead rate) x G&A rate

For example if the direct cost for a labor estimate is $10,000 and the fringe, overhead and G&A rates are 25%, 50% and 10% respectively, the indirect costs would be calculated as:

• Fringe cost = $2,500
• Overhead cost = $12,500 x 50% = $6,250. This is the same as $10000 x 1.25 x 0.5
• G&A cost = $18,750 x 10% = $1,875. This is the same as $10000 x 1.25 x 1.5 x 0.1

There are exceptions to this, for example G&A cost which is only applied to the direct cost, or only to the indirect cost. These exceptions can be handled in the different indirect cost formulae.

Indirect costs in SAP are computed and posted at month-end based on costing sheets. While costing sheets and costing sheet rows in this application are conceptually similar, they are not the same as SAP.  Consequently any synchronization is manual. Costing sheets are configuration in SAP so changes require IT/consulting support and transport management, and so do not happen often. The reasons why costing sheets are different in this application as compared to SAP and therefore negates the benefit of synchronizing costing sheets:

• SAP indirect cost "base keys" can only be setup on the basis of cost elements (or cost element groups) as opposed to this application where base costs can be filtered on any criteria or field you choose include custom tags
• Projects in SAP are often split by company resulting in many different costing sheets being applied across a global program at month-end. Proposals are global in this application so only a single costing sheet is used globally
• Indirect cost formulae in SAP are configured on the basis of "which rows to include" vs. formula based on a mathematical expression in this application
• Indirect costing rates are often maintained by the finance department in SAP for month-end and short term business planning, maybe 5 years into the future. Proposal estimates often need indirect cost rates further into the future than this.