% Overhead applied to Estimate / Proposal

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Unbridled

Unbridled

Senior Member
Location
Tampa, Fl
After 10 years of applying a base % to the direct job expenses on an estimate, I am now considering applying overhead on a sliding scale depending on the size of the project.
I am considering appling a higher % on smaller projects and a small % on larger projects with the following in mind.

*A larger % on a smaller number may be close in value as a smaller
% on larger projects.
* It takes more overhead percentage wise on a small project as it does a large project.

Does anyone here concur?
Looking for some input.

JC
 
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oldsparky52

Senior Member
Location
Wilmington, NC USA
I agree but would be cautious on fooling myself. I agree that smaller jobs do take more overhead support than larger jobs.

I've seen OH recovery ideas that pooled all OH together and then recovered it on labor and material. Personally, I always thought that OH from labor (WC, UI, FICA, etc) should be recovered on labor sales only, and general OH recovery (liability insurance, office support, etc) should be recovered across labor and materials (and equipment if you use it).

Just don't too fancy and get to the point you are not recovering enough OH.
 
S

Strathead

Senior Member
Location
Ocala, Florida, USA
Occupation
Electrician/Estimator/Project Manager/Superintendent
Unbridled said:
After 10 years of applying a base % to the direct job expenses on an estimate, I am now considering applying overhead on a sliding scale depending on the size of the project.
I am considering appling a higher % on smaller projects and a small % on larger projects with the following in mind.

*A larger % on a smaller number may be close in value as a smaller
% on larger projects.
* It takes more overhead percentage wise on a small project as it does a large project.

Does anyone here concur?
Looking for some input.

JC
Click to expand...

IMO you need to cover your costs, however you do it. Not sure that % base is the right formula for a smaller project. I, for example have gotten in the habit of putting a fixed dollar amount in projects under $10,000 for the University of Florida if they want schedule of values, submittals, retainage and incremental billing. They have recently decided to waive these requirements and save the money.
 
Unbridled

Unbridled

Senior Member
Location
Tampa, Fl
oldsparky52 said:
I agree but would be cautious on fooling myself. I agree that smaller jobs do take more overhead support than larger jobs.

I've seen OH recovery ideas that pooled all OH together and then recovered it on labor and material. Personally, I always thought that OH from labor (WC, UI, FICA, etc) should be recovered on labor sales only, and general OH recovery (liability insurance, office support, etc) should be recovered across labor and materials (and equipment if you use it).

Just don't too fancy and get to the point you are not recovering enough OH.
Click to expand...

Yes indeed, W/C, 940 and 941 taxes, etc. Is labor burden to me and is a function of each labor unit. I include this liability as a direct job expense and not overhead.

thank you
 
Unbridled

Unbridled

Senior Member
Location
Tampa, Fl
Cover Costs

Cover Costs

Strathead said:
IMO you need to cover your costs, however you do it. Not sure that % base is the right formula for a smaller project. I, for example have gotten in the habit of putting a fixed dollar amount in projects under $10,000 for the University of Florida if they want schedule of values, submittal s, retainage and incremental billing. They have recently decided to waive these requirements and save the money.[/QUO

Yes, absolutely, the most significant part of an estimate is assuring you have a break even point established. For me a break even point includes overhead. I'm just trying to find what the real overhead per project is rather than apply the same % overhead on each project.

Thank You
Click to expand...
 
Unbridled

Unbridled

Senior Member
Location
Tampa, Fl
Strathead said:
Me too! That is the way I was taught by a very great man.
Click to expand...

It's too bad the competition and number shopping is so tight here in the Tampa area. To the best of my knowledge, any profit over 5-7 % puts you out of the ball game. So one must have a good grip on what exactly it's going to cost him to do the project, including overhead.
 
brantmacga

brantmacga

Señor Member
Location
Georgia
Occupation
Former Child
I adjust them based on project size.

If the job is $100k, it's going to take about 12% for OH and I'm putting 15% for profit on everything. If it's a $1M job, it may slide down to 8% OH and profit has to come down to around 10% to be competitive. The profit is going to be variable also between labor and materials. It's hard to tack 15% profit onto $500k of fixtures and gear and be competitive in the markets I bid. I'll keep it on the labor though. In certain towns I usually know what or who I'm bidding against, and I may have to adjust profits if it's a job we need; overhead is what it is though.

The market is pretty good right now in the southeast so on some projects I've actually been going up. I've bid some jobs that we really don't need to do, and go in high just to gauge what everyone else is doing.


If it's a big job I'm not going to bid, I may just call up one of my suppliers and get the manufacture quotes, do a rough-take off and get an idea what we could do it for, then call up the GC estimator after the bid date and find out what it went for. I've found that few of them are willing to do that, but make friends with some GC estimators that don't mind feeding you information. It'll keep you from selling yourself short in the future.


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brantmacga

brantmacga

Señor Member
Location
Georgia
Occupation
Former Child
Unbridled said:
It's too bad the competition and number shopping is so tight here in the Tampa area. To the best of my knowledge, any profit over 5-7 % puts you out of the ball game. So one must have a good grip on what exactly it's going to cost him to do the project, including overhead.
Click to expand...

Two of our main competitors are out of Tampa for the Florida region, and we're usually neck-and-neck on pricing at 15% profit. Idk what their labor is compared to mine, but I feel like these days it's pretty close.


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I

Ingenieur

Senior Member
Location
Earth
Look at the previous few years financial records
sum up your oh (how ever you define it)
calc the percentage of you revenue
Add a few %
say rev 1.2 mil
oh 0.12 mil
calcs to 10%, perhaps use 12
 
P

petersonra

Senior Member
Location
Northern illinois
Occupation
engineer
At a previous job I was tasked to come up with a means of consistently quoting engineering hours for control projects. I went back through all of the projects the company had done for either 5 or 7 years and wrote down all the characteristics I thought were important about each one of the projects how many hours it took what person was on it that kind of thing. I discovered some consistent numbers around certain factors. So those factors got put on the form. After all these years I don't remember the exact number so don't hold me to these being exact but these were some of the more important factors that influence how many hours of engineering it took to complete these projects.

The number of control Engineers assigned to the project consistently had a very substantial effect on how many total engineering hours it took. Adding a second engineer to a project generally increase the number of hours it took by about 50% and having a third on the project just about doubled it. Took me awhile to figure this one out but eventually it dawned on me that there are so many meetings and so many things that have to be read and commented on that all the engineers working on the job would have to do so there was a lot of stuff that if you had an extra engineer or two on the job two or three people would be doing the same thing. There's also a fair amount of time involved in coordinating the activities of multiple people that's not real obvious.

Very consistently any project that was being run by an engineering company like Bechtel or Sargent & Lundy would take about twice as long as a project that did not have an outside engineering company involved.

Anytime a customer had review privileges over drawings and designs it added somewhere between 10 and 20% just because you had to go back and forth so many times.

The size of the spec made a big difference. I eventually created an algorithm that added a certain amount of engineering time based on the sheer number of pages in the spec. The more pages the more engineering time was added.

There were other factors that were on the form that I don't recall off the top of my head. But it was only a handful of adjustment factors that made a huge difference in how many hours it was going to take to do the jobs.
 
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