How costs are normalized in Polaris
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.
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.
= 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
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.