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Overhead Analysis
Applying Overhead & Profit to Job Estimates
A challenge for nearly all contractors is the appropriate markup for overhead and profit on a job in a fixed-price bid environment. In one instance, a contractor had used a standard markup for overhead and profit that was not risk-based or reassessed in light of current circumstances.
BKD helped the contractor develop an overhead application model that considered the relevant risk factors of projects while also evaluating what current contracts were contributing toward overhead and profits. The result: a much more profitable contractor who now uses risk-based and contribution margin decision analysis in applying overhead and profit to job estimates. Stop the Red Ink!
A BKD client was losing money and didn't know why. BKD spent time with this contractor to identify and make recommendations for improvement.
BKD spent one day interviewing the owners and the foreman. We reviewed estimates and job status reports and looked at project management from bid/award through completion. We also discussed materials, labor organization, billings, change orders and tools with various employees. The result: BKD identified the contractor's strengths and areas for improvement. Their estimating skills were competitive and success rate was one in four bids. The contractor also had a very knowledgeable and loyal field force. This worked to advantage in the competitive construction industry. BKD recommended the company formalize the project hand-over from the office to the field, develop basic cost codes for tracking costs in the field and adjust the size of the permanent crew. A contractor's markup for overhead and profit is often the most critical factor in determining whether you are successful in a competitive bidding process. Contractors who understand how to manage their overhead effectively are most likely to succeed. BKD's experience in this area can help you:
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