Overhead Cost for project:
Overhead cost for project is very important aspect in construction or in project. The overhead cost affect lots on entire construction cost if not planned well.
In construction, Overhead cost for project results from the various sources like,
- Structure of the organization,
- size and form of organization,
These two factors mainly divide the overhead cost into many subheads.
Overhead cost for project is all those indirect costs like
- labor costs,
- rent,
- travel expenditures,
- utilities and communication bills,
- supplies, advertising,
- insurance accounting, legal fees, etc
- The percentage of overhead cost is directly proportional to the percentage of revenue on a providing the services and goods, or in other words, to maintain the standards.
- A low overheads indicates efficiency and more profits is more.
- The percentage overheads and profit for any project varies from 10% to 30% depending on scale and type of project.
Types of Overhead costs:
There are two types of overhead cost,
- General Overheads: These types of overheads are considered for the general work.
- Job Overheads: These types of overheads are considered for job related works.
labour welfare, compensation to labour in case of accident or death. Public relation etc.
| General Overheads (Recurring known expenditures) | Job Overheads ( in construction) |
| Office Rent Salaries of office staff Stationary items and printing, postages Telephone and electric BillsTravelling | Go-Down rent Small tools for construction, planks, ladders, ropes, hand tools for workmen Repairs & maintenance, depreciation for tools and plant Lighting and electricity at site Mobilization of establishment Public Relations Labor Welfare & safety, safety programs Workmen compensation & insurance Interest on investment Theft or loss |
How to calculate the Overhead cost for project:
In general, the calculation of overheads is done by assuming the percentage value for the all types of the overheads.
For example: For the residential project, The material and construction cost of the project is, 50lakhs.
Factors affecting the project overhead costs are as follows:
1. Type of contract:
It is very important that what kind of the contact is involved in project. either it may be lump sum contract, work rate contract or any other type. The different kind on contract need different resources and that’s why it affect the over head cost.
2. Project complexity:
Project complexity has direct relationship with the overhead cost. more the project complexity more the over head cost, less the complex project has less overhead cost. so to reduce the overhead cost, one need to design the project with less complexity.
3. Size and location of project:
Location of project has huge effect on overhead cost. If the project is in the suburban, then the availability of the resources is good and the overhead will be less. But if it is in rural areas then we need to spend more cost for the over heads. Large scale project generally has more overhead cost as compared to the medium scale or small scale project.
4. Duration of project: Duration of project has direct effect on the over head. more the project duration more the overhead cost. less the project duration less the overhead cost.
5. Schedule of payment:
6. Funds availability and Project resources: Funds availability and project resources always hamper on the project duration. Unavailability of funds and resources delay the project which lead into the more the overhead cost.
7. Workability of labour: The method, nature and productivity of the labour increases or decreases the overhead cost. Unprofessional behavior and poor productivity leads delay and then increases overheads.
8. Subcontracted work
9. Competitors and competition
10. The consultants:
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