Estimating in Building Construction

44 CHAPTER SIX

FIGURE 6.1.Estimated Home Office Costs for One Year.

From this, it should be obvious that the more work that
can be handled by field operations, the smaller the
amount that must be charged for general overhead and
the better the chance of being the low bidder. As a con-
tractor’s operation grows, attention should be paid to how
much and when additional staff should be added. The
current staff may be able to handle the extra work if the
additional workload is laid out carefully and through the
use of selective spot overtime. Another consideration to
adding new staff is the cost of supporting that person with
computers, communications equipment, office space, and
furniture.
Once the home office overhead has been estimated, it
becomes necessary to estimate the sales for the year. If that
amount is to rise over the coming year, the plan must state
how to make that happen with the associated costs
included in the budget. Will this growth come about by
bidding for additional jobs, and will that require additional
estimators? Will the growth come by expanding into new
markets; and, if so, what are the costs of becoming known
in these new markets? These are very important strategic
issues that need to be addressed by the key people in the
construction company. Once the sales for the year are esti-
mated, a percentage can be developed. This percentage can
then be applied to all work that is pursued. If this is not
included in the estimate, these services are being provided

free to all customers. Example 6-1 takes the home office

cost estimate and shows how it would be allocated to spe-

cific projects.

EXAMPLE 6-1 HOME OFFICE COST ALLOCATION

Anticipated Home Office Costs for Fiscal Year—$690,000.

Anticipated Sales Volume for Fiscal Year—$9.5 million.



Some contractors do not allow for the category “Gen-

eral Overhead Expense” separately in their estimates; instead

they figure a larger percentage for profit or group overhead

and profit together. This, in effect, “buries” part of the

expenses. From the estimator’s viewpoint, it is desirable that

all expenses be listed separately so that they can be analyzed

periodically. In this manner, the amount allowed for profit is

actually figured as profit—the amount left after all expenses

are figured.



$690,580

$9,500,000

7.3%

Home office cost allocation



Annual estimated home office costs

Estimated annual revenue

Home office cost allocation