How to calculate the Person Month rate (PM rate) for your Horizon proposal budget

PM rate is one of the key figures you will need to properly define your budget when submitting a proposal.

Every proposal needs a budget. And every budget needs a detailed calculation on your personnel costs. Research and Development projects are mainly an investment your organisation is doing in a very specific technology or action which will bring innovation into the market.

Horizon Europe proposals require to determine the foreseen cost in personnel your organisation will be spending should the proposal be funded by the European Commission. Therefore, a good estimation is the first tool for a right planning ahead of your future project.

A proper calculation of the PM Rate includes two variables: cost and time.

How to calculate the personnel costs

In Horizon Europe Personnel are referred to the cost of four clear categories of people that work for an organisation (art 6.2 A, AMGA):

  • 1 – Regular employees having a monthly salary and have a regular employement contract.
  • 2 – External employees like freelancers that work in your organisation under a contract but are not regular employees. These are called “Costs for natural persons working under a direct contract”.
  • 3 – External employees paid by another organisation. Do you know this framework agreements between a service provider and your company? It could work too. Technically speaking we are talking of “Costs of personnel seconded by a third party against payment”
  • 4 – SME Owners or Natural persons which are beneficiaries (yes, this can happen too) and do not have a salary. There are unit costs (lump sums) that apply for these special cases.

Each of the three first categories will have an annual total cost you will need to know. These costs we are referring to include (1) salary (2) social security charges (3) any other direct expense the organisation pays and (4) pay-rise, as project usually last for several years.

These costs are NOT a commercial cost, they don’t included overheads and are not based in magical illusion on what I could potentially charge to a third party under a commercial contract. This is a grant, not a commercial endeavor.

Personnel costs are the direct costs a company pays for each of the employees in the first three categories. Full stop.

Example of personnel costs

Person A and Person B in Company X have the following gross salaries per year: 35k€ and 60k€.

Social security costs paid by the company add a 30% more of their gross salary (estimation).

  • Person A cost 35.000€ * 1.30 = 45.500€ à This is the cost of Person A in one year.
  • Person B cost 60.000€ *1.30 = 78.000€ à This is the cost of Person B in one year.

Time constrain enters the game

European projects measure time in a different time unit than hours or days. The time unit used is called Person Months or PMs. How much time is 1 PM? It’s easy.

1 PM is the time that a person will work full-time in a company for a month.

This means the equivalent in hours will depend on the labour agreement and/or the working calendar of the organisation. It’s not the same 1 PM for organisation X than for organisation Y. As an average consider 1PM is around 130 to 150 hours.

Important: a person full-time cannot work more than 12PMs in a year (excluding overtime).

The following step in calculation including time constrains.

Nailing the PM cost requires to estimate the workload of each of the people who will take part in the project. Following our earlier example, Person A will work an 80% of the time in the project and Person B a 20%. This means:

  • Person A cost will be 80% of 45.500€ = 36.400€ for an 80% of their time in a year. This means an 80% of 12PMs in a year à 36.400€ for 9.6PMs
  • Person B cost will be 20% of 78.000€ = 15.600€ for an 20% of their time in a year. This means a 20% of 12PMs in a year à 15.600 for 2.4PMs

Overall, we are talking of 36.400€ + 15.600€ for 9.6PMs+ 2.4PMs à 52.000€ for 12 PMs.

This makes 1PM = 4.333€. This is the number we are looking for.

Final Recommendations

This cost will be justified with payrolls and bank receipts only if the project is funded, but it means you will need to consider the estimated value in order not to deviate from your initial projections.

The usual mistake in budget building includes overestimating the amounts of the PM. If you have high positions working in the project but with a very heavy load across different projects they will not have room for more, and those tasks will be for sure covered by “cheaper” profiles.

Don’t increase the PM rate if you don’t have that resources to justify. At the end, you can justify 5000€ with 1PM or with 2PMs at 2.500€ each and the math will work. Nevertheless,  you will need to explain why you used a double effort in your execution than originally planned, and this is no longer about the math working.

Final Conclusion

PM rate is the cornerstone to build your personnel costs budget for a Horizon Europe project. Follow our tips and run a successful project.

Disclaimer: we provide this information under our own experience running a significant number of European projects from over a decade. Do not forget to check the official regulation about personnel costs at the EC official documentation.

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