Estimating Overhead

On what Amount is Overhead Based?

The overhead percentage in the BidMagic construction estimating software program will be applied to hard costs, hard and soft costs, or the total cost of each project, depending on which calculation method you have selected (see page 148).

When you calculate the overhead percentage for your business, you need to divide your past overhead expenses by the 'total business volume'--a quantity which will vary depending on the calculation method you selected.

Depending on which method you chose to calculate overhead and profit, you'll use one of the three following sections to arrive at a total business volume.

Calculating total Business Volume--Hard Costs Only

If you apply overhead to Hard Costs Only, you'll divide past overhead costs by the total you spent on actual construction labor, materials and subcontractors, when you figure your overhead percentage.

To get a total for hard costs, follow these steps:

1. For a particular time period, check your labor records, and include any employee time spent on work included in the Specifications portion of BidMagic. Add a burden percentage to all labor costs. NOTE: Do not include office time, or time spent on change orders, contingencies, supervision, or any other soft costs.
2. Calculate the cost of time spent by the owner(s) on any work included in Specifications. HINT: Include any construction work, plus project overhead costs such as client meetings, writing contracts, getting building permits, etc. Do not include supervision time if you consider that as a soft cost.
3. Calculate the cost of any materials used on the jobsite.
4. Calculate the amount paid to all subcontractors working on the jobsite.
5. Calculate any miscellaneous hard costs such as building permits or legal fees. NOTE: Do not include interest, sales tax, broker 's commission, or any other soft costs.

If you use the Overhead Calculator, enter each of these costs into the Hard Costs fields on the right side of the calculator. If you do not use the Overhead Calculator, divide the total of all overhead costs by the sum of the items mentioned above, multiply the result by 100, and enter it into the Overhead field.

Calculating total Business Volume --Hard and Soft Costs

If you apply Overhead to Hard and Soft Costs, you'll divide past overhead costs by the total you spent on everything except overhead, net profit, sales tax and broker commissions, when you figure your overhead percentage.

To get a total for hard and soft costs, follow these steps:

1. From the total amount you spent on payroll labor during the time period you are using, subtract the time spent on office work and other overhead items. Add a burden percentage to all labor costs.
2. Calculate the cost of time spent by the owner(s) on specific projects, including the time spent on 'soft cost' items.
3. Calculate the cost of all materials, except those used in the office.
4. Calculate the amount paid to all subcontractors, except for work that can't be assigned to a particular job.
5. Calculate any miscellaneous costs such as building permits, legal fees, interest, sales tax, broker's commission, and any other soft costs. HINT: The totals you calculated, when added to the total of overhead, sales tax, commissions and net profit, should equal the total amount of all expenditures in your entire business.

If you use the Overhead Calculator, enter each of these costs into the Hard/Soft Costs fields on the right side of the calculator. If you do not use the Overhead Calculator, divide the total of all overhead costs by the sum of the items mentioned above, multiply the result by 100, and enter it into the Overhead field.

Calculating total Business Volume--All Costs

If you apply overhead to All Costs, you'll divide past overhead costs by the total volume of all business you've done, when you figure your overhead percentage.

To get a total for your business volume, follow these steps:

1. Calculate the total amount you spent on all payroll labor during the time period you are using. Include all payroll costs, including employer taxes and benefits.
2. Calculate the cost of all time spent by the owner(s).
3. Calculate the cost of all materials.
4. Calculate the amount paid to all subcontractors.
5. Calculate the total of all miscellaneous costs.

HINT: The total of these five items should be equal to the total amount spent by your company during the time period you are using.

If you use the Overhead Calculator, enter each of these costs into the All Costs fields on the right side of the calculator. If you do not use the Overhead Calculator, divide the total of all overhead costs by the sum of the items mentioned above, multiply the result by 100, and enter it into the Overhead field.