By Billy Wright, Consultant, LA Consulting; Chandra Greiner, Consultant, LA Consulting
In the public works field, our focus is often on just accomplishing work. Cost, of course, is a major issue, along with labor, equipment, material and contracts. However, the largest cost being incurred is often the one most misunderstood — overhead.
Public works agencies face increased scrutiny today and are equally challenged to closely monitor operational costs and thus must understand some basic accounting practices.
Every agency needs to be critical of how it is accounting for work performed while ensuring it documents for all cost and assures it receives total compensation for reimbursable services performed. Determining an appropriate overhead rate can guarantee adequate compensation for those services.
This discussion provides a brief description of the different types of overhead and a specific methodology for calculating an avoidable overhead rate that can be for both maintenance and operations.