The Apportion method is a technique used in project management for estimation and allocating indirect or shared costs to specific project activities or work packages. This method is particularly relevant when you have common resources or costs that are shared among multiple projects or activities. The Apportion method is used to distribute these shared costs fairly and accurately to individual project components. Here’s a description of the Apportion method in IT project management:
1. Purpose:
- Cost Allocation: The Apportion method is primarily used to allocate indirect costs, shared resources, or overhead expenses to specific project activities or tasks.
2. Key Characteristics:
- Proportional Allocation: The Apportion method distributes costs in proportion to a certain basis or factor. This factor can be a measurable parameter associated with each project activity.
- Shared Resources: It’s typically applied in scenarios where resources or costs are shared across multiple projects or tasks. This method ensures that each project bears its fair share of these shared costs.
- Common Bases: The method requires establishing a fair basis for apportioning costs, which can be any parameter that reflects the usage of the shared resources. Common bases include labor hours, square footage, the number of users, or any other relevant metric.
3. Steps to Implement the Apportion Method:
- Identify Shared Costs: First, you need to identify the indirect or shared costs that need to be allocated. These could include expenses such as office space, utilities, administrative support, or shared software licenses.
- Select Allocation Bases: Determine the appropriate basis for allocating these shared costs. For example, if you’re allocating office space costs, you might use the square footage of office space used by each project as the basis.
- Calculate Allocation Ratios: Calculate the allocation ratios for each project or activity. This is done by dividing the relevant basis (e.g., square footage, labor hours) for each project by the total basis across all projects.
- Allocate Costs: Finally, allocate the shared costs to each project or activity by multiplying the allocation ratio for that project by the total shared cost.
4. Advantages:
- Fairness: The Apportion method ensures that each project or activity bears its fair share of shared costs, making cost allocation more equitable.
- Transparency: It provides a transparent and auditable process for allocating indirect costs, which can be important for financial accountability.
5. Limitations:
- Sensitivity to Allocation Bases: The accuracy of the allocation depends on selecting the most appropriate and relevant allocation bases. Using an incorrect or poorly chosen basis can lead to inaccurate allocations.
- Complexity: In situations with many shared resources and multiple projects, the Apportion method can become complex and time-consuming.
6. Example in IT Project Management:
- Consider an IT department where the cost of shared servers is being allocated to different projects. The Apportion method could be applied by using the number of server hours used by each project as the allocation basis. Project A may have used 30% of the server hours, while Project B used 70%, so the shared server costs are allocated accordingly.
In IT project management, the Apportion method is a useful tool for ensuring that indirect or shared costs are fairly distributed among various projects or activities. It helps in achieving cost transparency and accountability, making it an important technique for managing project finances effectively.
