Estimating issue

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Hello guys,
I have just registered in this forum and I do not really know if I am violating the rules with my first question but I am very confuse about how overhead percentages are applied and how to obtain a truly overhead percentage or value. For example this is my idea on how to applied a Project Manager salary to an overhead value or percentage. The reason of my question is because I have talked with our estimators and I think they do not really know how to figure a real overhead. I think the estimation proccess is an art and not an square model.
Let's say I have a project Manager running 4 projects. Three of these projects were sold from 4,000,000.00 to 7,000,000.00 and the other project was sold for about 900,000.00 and I am thinking in using this project manager for a new 8,500,000.0 Hotel-Condo project. Here is my theory:
Let's say this Project Manager earns $ 95,000.00 a year and the new project will take about 3 years.
I will devide his salary in 5 parts (5 projects. Four of them are running)

Project # 1----- 4,500,000.00
Project # 2----- 5,500,000.00
Project # 3----- 6,000,000.00
Project # 4----- 900,000.00
New Project # 5----- 8,000,000.00
-------------------------------------------
Adding all this will be---- 24,900,000.00

Then i will get each project percentage. Then we get

I will devide the salary based on the value of each one.

Project #1 ---- 18.07% of 24,900,000.00
Project #2 ---- 22.09% of 24,900,000.00
Project #3 ---- 24.10% of 24,900,000.00
Project #4 ---- 3.61% of 24,900,000.00
Project #5---- 32.13% of 24,900,000.00

Let's take the guy salary and get the 32.13%. (remember this PM is running all of this projects) so all of his salary goes to these projects.

so 32.13% of 95,000.00 is iqual to $30,523.50 X 3 years = $91,570.50

It is supposed that old projects will end sooner but at the same time others will start.

Of course I have to add FICA which is in Florida 15.3 % of gross and Gas for 2 travel to jobsite weekly for 3 years and health insuranse and of course the
usual gift for project termination.

In 3 years the hour rate for this guy for this project would be

52 weeks X 3 years project schedule = 156 Weeks X 7 days = 1092 days

less 52 weekends X 3 years = 156 weekends * 2 = 312 non-productive days

Billeable work days = 1092 - 312

Billable work days = 1092 - 312 = 780
now 780 billeable days * 8 hours/day = 6240 hours
Hour Rate = $91, 570.00 / 6240 hours = $14.67 per hour
If I tell the PM such salary he would kill me but I am just figuring his contribution to this project and not his overall salary.

Let me know guys if my theory would work ok. Let me know if you know of any book which explain this deeply. I will accept any sugestion and critics.

Thanks

Onemarketplace
 

hardworkingstiff

Senior Member
Location
Wilmington, NC
I think your theory will work, but not leave much wiggle room.

In my mind, you need to also consider how much of the PMs time will be spent on each project. If the smallest project only took 5% of his time, and the largest one takes 35% of his time, then I believe you are penalizing the small project and subsidizing the large one.
 

satcom

Senior Member
onemarketplace said:
Hello guys,
I have just registered in this forum and I do not really know if I am violating the rules with my first question but I am very confuse about how overhead percentages are applied and how to obtain a truly overhead percentage or value. For example this is my idea on how to applied a Project Manager salary to an overhead value or percentage. The reason of my question is because I have talked with our estimators and I think they do not really know how to figure a real overhead. I think the estimation proccess is an art and not an square model.
Onemarketplace

First welcome, and your not violating the rules.

"I have talked with our estimators and I think they do not really know how to figure a real overhead"

How did they get an estimators position. Hope your paying them a clerks salary if all their doing is take offs, the estimators I have worked with all had a good knowladge of bookeeping, along with experience in job costing.
 
Last edited:

celtic

Senior Member
Location
NJ
onemarketplace said:
I will devide his salary in 5 parts (5 projects. Four of them are running)

I think your assuming a 900k job will require the same % of time as a 8mil job...the 900k job may actually require more hand-holding than the 8mil job.
All jobs are not created equal (although many are but then somehow morph into something much different)

onemarketplace said:
Hour Rate = $91, 570.00 / 6240 hours = $14.67 per hour
If I tell the PM such salary he would kill me but I am just figuring his contribution to this project and not his overall salary.

I don't think you need to tell this person his "hourly rate"...if he hasn't figured it out already ...well, you get what you pay for.

A buddy of mine took a position as a PM just over a year ago. He knows what his "hourly" rate is (annual pay/hours worked annually)...he's just about ready to quit and strap on the tools again....less work, better pay, no headaches.


What's a JW in Fla. get...about $18 - $25/hr?
 

emahler

Senior Member
onemarketplace said:
Project # 1----- 4,500,000.00
Project # 2----- 5,500,000.00
Project # 3----- 6,000,000.00
Project # 4----- 900,000.00
New Project # 5----- 8,000,000.00
-------------------------------------------
Adding all this will be---- 24,900,000.00

Then i will get each project percentage. Then we get

I will devide the salary based on the value of each one.

Project #1 ---- 18.07% of 24,900,000.00
Project #2 ---- 22.09% of 24,900,000.00
Project #3 ---- 24.10% of 24,900,000.00
Project #4 ---- 3.61% of 24,900,000.00
Project #5---- 32.13% of 24,900,000.00

Let's take the guy salary and get the 32.13%. (remember this PM is running all of this projects) so all of his salary goes to these projects.

so 32.13% of 95,000.00 is iqual to $30,523.50 X 3 years = $91,570.50

It is supposed that old projects will end sooner but at the same time others will start.

Of course I have to add FICA which is in Florida 15.3 % of gross and Gas for 2 travel to jobsite weekly for 3 years and health insuranse and of course the
usual gift for project termination.

In 3 years the hour rate for this guy for this project would be

52 weeks X 3 years project schedule = 156 Weeks X 7 days = 1092 days

less 52 weekends X 3 years = 156 weekends * 2 = 312 non-productive days

Billeable work days = 1092 - 312

Billable work days = 1092 - 312 = 780
now 780 billeable days * 8 hours/day = 6240 hours
Hour Rate = $91, 570.00 / 6240 hours = $14.67 per hour
If I tell the PM such salary he would kill me but I am just figuring his contribution to this project and not his overall salary.

Let me know guys if my theory would work ok. Let me know if you know of any book which explain this deeply. I will accept any sugestion and critics.

Thanks

Onemarketplace


the math doesn't add up....

with the simplified equation, to get your hourly rate, it would actually be:

Hour Rate = $91, 570.00 / (6240 hours/5 projects) =

$91,570.00 / 1248 = $73.37/hr for that project,

based on an even division of his labor hours.

In reality, you would weight the hours by the projects.

so over the 3 yrs, he puts in a total of 6240 hours, but this project may take 2500 of those hours, so the equation will look like this

$91,570 / 2500 = $36.63/hr for this project.

if you want to determine his hourly rate for the entire 3 yrs (6240 hrs) it would be

($95,000 * 3) /6240 = $285,000 / 6240 = $45.67/hr
 

brantmacga

Señor Member
Location
Georgia
Occupation
Former Child
celtic said:
What's a JW in Fla. get...about $18 - $25/hr?

maybe south FL. south GA and north FL have very low wages, except maybe for some positions in JAX. Although our cost of living has steadily been increasing, it's still a reasonably affordable place to live. I'll give you a quick example. An aunt of mine just moved here from Tampa. She was able to get her job at Target transferred to a local store here. Working in south GA, she makes $10/hr. The exact same position in Tampa paid her $33.50/hr. Thats a $48,880 a year pay cut, but she's able to have a lifestyle comparable to what she had before.
 

dduffee260

Senior Member
Location
Texas
onemarketplace said:
Project # 1----- 4,500,000.00
Project # 2----- 5,500,000.00
Project # 3----- 6,000,000.00
Project # 4----- 900,000.00
New Project # 5----- 8,000,000.00
-------------------------------------------
Adding all this will be---- 24,900,000.00

Then i will get each project percentage. Then we get

I will devide the salary based on the value of each one.

Project #1 ---- 18.07% of 24,900,000.00
Project #2 ---- 22.09% of 24,900,000.00
Project #3 ---- 24.10% of 24,900,000.00
Project #4 ---- 3.61% of 24,900,000.00
Project #5---- 32.13% of 24,900,000.00
Ok let's see, you have 24,900,000.00 in projects coming up. How much money up front are they going to let you have. Alot of people on this forum get 50% up front before they even think about starting a project. I guess in this case it would be 12,495,000.00. First ask the GCs if they will give you that earnest money up front. If they do then I would say they are good to go. After all, why should you be the bank?
 

petersonra

Senior Member
Location
Northern illinois
Occupation
engineer
As an estimating tool, just about any scheme that spreads the cost of the PM costs over multiple jobs in some consistent way is OK.

IMO, once you actually get the job though, you should convert to using actual costs of the PM.

If you figure he costs you $100/hour (probably a reasonable enough figure when everything is taken into consideration), charge each project $100 for each hour he worked on that project.

You may also have other PM costs associated with the projects and IMO, in general, they should not be charged as overhead. Things like donuts, mileage between jobs, coffee, etc., all should have some way to bill to the project that your money was actually spent on.

The poster that suggested the smaller jobs may eat up as much time as the larger ones was absolutely right. Smaller jobs often require as much hand holding and meeting going as larger ones do. And often on smaller projects, there are fewer (maybe no) site foreman to take over some of the more mundane PM tasks.
 

cadpoint

Senior Member
Location
Durham, NC
I've read the orginal post twice & gave up, this is the new math thats
everyone is talking about right. :smile: My friend, IMHO you look like your a candiate for that new employee tracking software.
Theres 2088 working hours (straight time) in a year, that might be 2008 since
your Project man gets 2 weeks a year, 2088 which includes holiday that fall inside the working week etc... 52 x2 = 104, 365 - 104 = 206 x 8 = 2088.
Ones need to grasp of standard accounting terms and only apply accordingly.
Cost, expenses, OH, Material, Labor, etc., OH course I never got the new math, damn old age ...
 

petersonra

Senior Member
Location
Northern illinois
Occupation
engineer
where I used to work we figured there were 45 weeks of work per year.

52 calendar weeks
-3 vacations
-2 holidays
-1 sick time
-1 misc non-project training

that works out to 1800 hours per year of actual work.

If you pay the guy $100,000 a year, plus benefits, taxes, etc., probably comes to maybe $125,000, or almost $70 an hour, divided over 1800 hours.
 

satcom

Senior Member
dduffee260 said:
Ok let's see, you have 24,900,000.00 in projects coming up. How much money up front are they going to let you have. Alot of people on this forum get 50% up front before they even think about starting a project. I guess in this case it would be 12,495,000.00. First ask the GCs if they will give you that earnest money up front. If they do then I would say they are good to go. After all, why should you be the bank?

I don't think everyone expects 50% up front on every project, the amount of deposits, if any will depend on the type and size, of the project, their credit rating, and payment history. There is no set amount, some jobs may require a 50% deposit, or no deposit, others may accept a letter of credit, or payment terms.

It appears alot of people on this forum do not check credit, or set contract terms before getting involved in a project, many are so obsessed with getting work that, all the rules of assuring payment, go out the window.
 
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petersonra

Senior Member
Location
Northern illinois
Occupation
engineer
Occupation:
Project Designer
How are you related to the electrical industry?:
I work for a well known Electrical Contractor in South Florida. We do mostly Hi rise Condos and Hote

I wonder what will happen when this "well known Electrical Contractor in South Florida" finds out his project designer is spreading confidential company financial information all over the Internet?
 

tyha

Senior Member
Location
central nc
petersonra said:
I wonder what will happen when this "well known Electrical Contractor in South Florida" finds out his project designer is spreading confidential company financial information all over the Internet?

Thats what im wondering. and if your company is handleing that kind of volume and you asking questions like that then i think you need more help than I can offer.
 

emahler

Senior Member
tyha said:
Thats what im wondering. and if your company is handleing that kind of volume and you asking questions like that then i think you need more help than I can offer.

especially when you miss a simple part of the equation :D (not you, the OP)
 

celtic

Senior Member
Location
NJ
I wonder about these "one hit wonders" who post a very specific question that has been:
- asked out here (w/o a complete consensus among the participants)
- recently been a topic in EC&M
- recently been a topic in ECMag
- etc.

They post once, never to return and jump into the fray to offer any more input/discussion.
 
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