PSMJ Resources, Inc. Part 2: Top-Down Budgeting Made Easy. Kate Allen, P.E.

Transcription

1 PSMJ Resources, Inc. Provider Number #J174 Part 2: Top-Down Budgeting Made Easy Course Number budgetweb Kate Allen, P.E. September 27, 2016 This information is copyrighted by PSMJ Resources, Inc. All rights reserved.

2 Using the Technology 2

3 Credits with AIA CES 1 LU Hour, PDH or CEU Credit(s) earned on completion of this course will be reported to AIA CES for AIA members. Certificates of Completion for both AIA members and non-aia members are available upon request. This course is registered with AIA CES for continuing professional education. As such, it does not include content that may be deemed or construed to be an approval or endorsement by the AIA of any material of construction or any method or manner of handling, using, distributing, or dealing in any material or product. Questions related to specific materials, methods, and services will be addressed at the conclusion of this presentation. 3

4 Post Webinar Certificate(s) Credits Webinar Recording Special Offer Part 2: Top-Down Budgeting Made Easy 4

5 Course Description In just two 60-minute webinars, PSMJ Consultant Kate Allen, P.E., demonstrates a top-down budgeting technique that will walk you through six simple steps, starting with calculating revenue capacity and ending with a discussion on year-end profit allocation. During each webinar, she shares valuable benchmarking data from PSMJ s annual Financial Performance Survey and Management Compensation Survey, which allows you to check for reasonableness as you develop your budget. 5

6 Learning Objectives Step 1: Estimating Net Revenue Capacity Step 2: Allocate Raw Labor Costs and Chargeability/Utilization Step 3: Estimating TARGET Direct Labor Multiplier Step 4: Estimating Overhead Rate Step 5: Estimating a Breakeven Direct Labor Multiplier Step 6: Putting it All Together: Estimating Profitability + Discussion on Allocation of Yearend Profit + 9 Key Metrics 6

7 Introduction Review - Part 1 Step 4: Estimating Overhead Rate Step 5: Estimating Breakeven Direct Labor Multiplier Step 6: Estimating Profitability + Discussion on Allocation of Yearend Profit Questions and Comments 7

8 Kate Allen, P.E. PSMJ s Director of A/E/C Surveys Affiliated with PSMJ since 2005 Education: B.A. Psychology B.S. Mechanical Engineering MBA Background: Engineer/Associate with MKK Engineers Co-Founder of Caveo Consulting Engineers Constructive Technologies Group 8

9 WHO is PSMJ? Newsletters Surveys & Books Seminars & Conferences Consulting Strategy Marketing Project Delivery Finance Human Resources Transition Providers of management information Focused exclusively on the A/E/C industry for over 35 years 9

10 Introduction Review - Part 1 Step 4: Estimating Overhead Rate Step 5: Estimating Breakeven Direct Labor Multiplier Step 6: Estimating Profitability + Discussion on Allocation of Yearend Profit Questions and Comments 10

11 EXAMPLE INCOME STATEMENT INCOME GROSS REVENUE $12,000,000 PROJECT RELATED EXPENSES $1,000,000 PROJECT RELATED SUBS $2,000,000 NET REVENUE $9,000,000 COST OF GOODS SOLD DIRECT LABOR $2,400,000 REIMBURSABLE EXPENSES $1,000,000 REIMBURSABLE SUBS $2,000,000 TOTAL COST OF GOODS SOLD $2,400,000 GROSS MARGIN $6,600,000 EXPENSES OVERHEAD LABOR OVERHEAD $1,600,000 NON-LABOR OVERHEAD $2,700,000 TOTAL EXPENSES $4,300,000 EARNINGS/PROFIT $2,300,000 % OF NET REVENUE 25.56% 11

12 Overall Summary Example Firm Profile: 7 total staff; Engineering Sub (this could just as easily be a department, team, branch, etc.) Calculated Net Revenue Capacity of ~$1M - the top line that we are starting with in our budget/model Calculated Chargeability of 64% - based on labor costs NOT labor hours. If looking at chargeability for 1 person use labor cost OR hours; if >1 person as a group use labor costs NOT labor hours Calculated a TARGET Direct Labor Multiplier of 3.31 this is for the team/firm/department as a whole Benchmarks are used to validate our assumptions for the budget/model 12

13 Step 1: Calculate Net Revenue Capacity CALCULATE REVENUE CAPACITY A B C D INPUT INPUT INPUT A x B x C EMPLOYEE # OF ANNUAL WORK HOURS Est. % OF TIME ON PROJECT WORK HOURLY BILLING RATE NET REVENUE CAPACITY John 2,080 55% $175 $200,200 Julie 1,560 25% $60 $23,400 Kim 2,080 85% $125 $221,000 Tim 2,000 80% $85 $136,000 Sue 2,288 90% $95 $195,624 Peggy 2,080 0% $60 $0 Mike 2,080 80% $145 $241,280 14,168 $106 $1,017,504 AVERAGE BILLING RATE TOTAL ANNUAL WORK HOURS NET REVENUE CAPACITY AS MODELED 13

14 Average Net Revenue per Total Staff Estimated Net Revenue: $1,071,504 Total Number of Staff: 7 Net Revenue per Total Staff: $1,071,504 / 7 Staff = $145,358 14

15 EMPLOYEE Step 2: Allocate Raw Labor Costs E F G H I J INPUT A x B A - F E x F E x G A x E HOURLY SALARY (w/o burden) # OF ANNUAL HOURS ON BILLABLE WORK # OF ANNUAL HOURS ON NON-BILLABLE WORK DIRECT SALARY INDIRECT SALARY TOTAL ANNUAL SALARY John $50 1, $57,200 $46,800 $104,000 Julie $ ,170 $7,800 $23,400 $31,200 Kim $40 1, $71,290 $12,581 $83,871 Tim $28 1, $45,333 $11,333 $56,667 Sue $27 2, $55,893 $6,210 $62,103 Peggy $28 0 2,080 $0 $58,240 $58,240 Mike $42 1, $69,888 $17,472 $87,360 8,625 5,543 $307,404 $176,036 $483,440 DIRECT LABOR EXPENSE INDIRECT LABOR EXPENSE SALARY EXPENSE 15

16 Step 2: Allocate Raw Costs & Calculate Chargeability for Firm/Team Total Direct Labor Expense: $307,404 Total Salary Expense: $483,440 Chargeability = Total Direct Labor Expense / Total Salary Expense $307,404 / $483,440 = 64% 16

17 Step 3: Calculate TARGET Direct Labor Multiplier for Firm/Team Total Net Revenue: $1,017,504 Total Direct Labor Expense: $307,404 Target DLM = Total Net Revenue / Total Direct Labor Costs Target DLM: $1,017,504 / $307,404 =

18 Validated our Assumptions and Results through Benchmarking Benchmarked Hourly Billing Rates Benchmarked Net Revenue/Total Staff Benchmarked Chargeability/Utilization Rate Key: The validity of any budget/model is only as good as the input or data used to create it! 18

19 SIX SIMPLE STEPS TO TOP-DOWN BUDGETING Step 1: Estimating Net Revenue Capacity Step 2: Allocate Raw Labor Costs and Chargeability/Utilization Step 3: Estimating TARGET Direct Labor Multiplier Step 4: Estimating Overhead Rate Step 5: Estimating a Breakeven Direct Labor Multiplier Step 6: Putting it All Together: Estimating Profitability + Discussion on Allocation of Yearend Profit + 9 Key Metrics 19

20 Introduction Review - Part 1 Step 4: Estimating Overhead Rate Step 5: Estimating Breakeven Direct Labor Multiplier Step 6: Estimating Profitability + Discussion on Allocation of Yearend Profit Questions and Comments 20

21 DEFINITIONS Labor Overhead salary related overhead, such as vacation pay, payroll taxes, etc. Also called Payroll Burden and Salary Overhead. This does not include indirect labor. General Overhead indirect labor (excl. paid time off) + non-labor related expenses required to run a firm, such as rent, general insurance, etc. Operating Overhead Rate total expenses or overhead expressed as a % of direct labor. (Labor overhead + General overhead = Total overhead) 21

22 DEFINITIONS Profit annual total net revenues less all project (direct) and operating expenses (overhead). Also called earnings. Retained Earnings earnings (profit) retained by the firm. Shareholder ROI (return on investment) year end distribution of earnings/profit to shareholders based on pro-rata share to provide return on their investment. Performance Bonuses the discretionary award of profits/earnings to firm employees (including shareholders) based on the employees performance. Preferably the measure of performance includes subjective and objective metrics. 22

23 Step 4: Estimating Operating Overhead Rate There are 2 fundamental components to OPERATING OVERHEAD 1. Labor Overhead = payroll burden on all labor costs, direct and indirect labor 2. General Overhead = indirect labor (excluding paid time off) + non-labor related costs/expenses such as rent, office supplies, etc. 23

24 Step 4: Estimating Operating Overhead Rate There are 2 fundamental components to OPERATING OVERHEAD 1. Labor Overhead = payroll burden on all labor costs, direct and indirect labor 2. General Overhead = indirect labor (excluding paid time off) + non-labor overhead related costs/expenses such as rent, office supplies, etc. 24

25 Overhead: Labor Overhead Labor Overhead = PAYROLL BURDEN or SALARY BURDEN Payroll Taxes = social security, unemployment, workers comp, and other required payroll taxes Pay for Time not Worked = vacation, sick, holiday, and other paid leave time Group Insurance = health, life, etc. Pension Payments = any mandatory payments, for example: defined benefit plans or 401K match Discretionary Retirement Contributions NOT INCLUDED for example: 401K contributions, profit sharing, etc. 25

26 Estimating Labor Overhead Option #1: Pull your firm s historical costs for expenses included as payroll burden and adjust as needed for the year ahead. Option #2: Review benchmark data. PSMJ reports data by peer group: firm size, practice area, geographical region, client type, and market sector. Compare to the peer group(s) that is similar to your firm. 26

27 Option #1 Historical Data EXPENSES Jan-Dec 2014 Jan-Dec 2015 Budgeted Jan-Dec 2016 Actual YTD (as of Sept.) Jan-Dec Budgeted NOTES Indirect Labor Administrative $xxxx $xxxx $xxxx $xxxx $xxxxno change Marketing $xxxx $xxxx $xxxx $xxxx $xxxxno change Paid Time Off $21,504 $26,340 $29,501 $22,126 $27,000No change Group Insurance Medical $30,700 $36,840 $41,261 $30,946 $45,38710% Incr Dental $3,070 $3,162 $3,257 $2,443 $3,3553% Incr Vision $2,456 $2,530 $2,606 $1,954 $2,6843% Incr Life $1,535 $1,612 $1,692 $1,269 $1,726 Payroll Taxes $42,980 $44,269 $45,597 $34,198 $47,8775% Incr Retirement $9,210 $9,302 $9,488 $7,116 $9,6782% Incr Note: This data not used in the model; this is an example only. 27

28 Option #2 Benchmarking Data: SUMMARY OF LABOR OVERHEAD Labor Overhead Rate (Payroll Burden) Labor Overhead Rate (% of Direct Labor) Median Mean Overall 52.1% 52.2% Staff Size 1 to Staff Size 21 to Staff Size 51 to Staff Size 101 to Staff Size 201 to Staff Size 351 to Architectural Architectural/Interiors Engineering (Prime) Engineering (Sub) Engineering (Survey) A/E Environmental Source: PSMJ s 2016 Financial Performance Benchmark Survey Report 28

29 Option #2 Benchmarking Data: LABOR OVERHEAD DETAIL LABOR OVERHEAD DETAIL (as % of Direct Labor) Mandatory Payroll Taxes Vacation, Sick Leave & Holiday Median Mean Median Mean Overall 13.9% 13.9% 15.9% 16.2% Staff Size 1 to Staff Size 21 to Staff Size 51 to Staff Size 101 to Staff Size 201 to Staff Size 351 to Architectural Architectural/Interiors Engineering (Prime) Engineering (Sub) Engineering (Survey) A/E Environmental Source: PSMJ s 2016 Financial Performance Benchmark Survey Report 29

30 Estimate Labor Overhead from Summary Data M INPUT LABOR OVERHEAD BENCHMARK AVG. N TOTAL H X M LABOR OVERHEAD Option #1: Base on Historical Info. Calculate Labor Overhead Direct Labor Costs: $307,404 Benchmarking Data (as % of Direct Labor) Option #2: Use Benchmarking Data (used in this example) 45% $143,250 Benchmark Median Firm Size % Median Engineering Sub 44.5% Average 46.6% Firm Size 1-20: 48.7% Engineering Sub: 44.5% Average: 46.60% (as % of Direct Labor) Labor Overhead: $307,404 X 46.6% = $143,250 30

31 Step 4: Estimating Overhead Rate There are 2 fundamental components to OPERATING OVERHEAD 1. Labor Overhead = payroll burden on all labor costs, direct and indirect labor 2. General Overhead = indirect labor (excluding paid time off) + non-labor overhead related costs/expenses such as rent, office supplies, etc. 31

32 General Overhead Indirect Labor Automobile Expense Bank and Line of Credit Fees Conferences Contributions Depreciation Dues & Subscriptions Employee Development Group Insurance Insurance Marketing Examples of General Expenses Office Equipment Office Supplies Miscellaneous Expense Outside Services Payroll Expense Postage & Delivery Printing & Reproduction Rent Telephone/Internet Travel & Entertainment Utilities 32

33 Estimating General Overhead Option #1: Pull your firm s historical costs for all other expenses excluding payroll burden items Option #2: Review benchmark data. PSMJ reports data by peer group: firm size, practice area, geographical region, client type, and market sector. Compare to the peer group(s) that is similar to your firm. 33

34 Option #1 Historical Data EXPENSES (Example) Jan-Dec 2014 Jan-Dec 2015 Budgeted Jan-Dec 2016 Actual YTD (as of Sept.) Jan-Dec 2016 Budgeted 2017 NOTES Indirect Labor $163,784 $148,900 $155,675 $116,756 $176,036Calculated in Model Automobile Exp $600 $800 $1,200 $900 $2,500Add 2 vehicles Bank and LOC Fees $154 $0 $200 $85 $300Estimate Conferences $6,000 $12,000 $15,000 $6,000 $27,5006 conferences Dues $485 $654 $700 $525 $3,0005 Prof. Organizations Insurance $3,991 $4,191 $4,400 $3,300 $5,28020% Incr per Carriers Marketing $21,490 $22,565 $23,016 $17,262 $25,31710% Incr - estimate Office Supplies $6,754 $6,957 $7,165 $5,374 $7,5245% Incr - estimate Outside Services $6,754 $6,957 $7,165 $5,374 $11,46560% Incr - estimate Postage & Delivery $1,228 $1,289 $1,354 $1,015 $1,4225% Incr - estimate Rent $46,971 $47,910 $50,306 $40,245 $52,3184% Incr per Contract Telephone/Internet $7,368 $7,589 $7,817 $5,863 $10,16230% Incr per Vendor Utilities $9,210 $9,302 $9,488 $7,116 $10,1527% Incr per Vendor TOTAL $156,939Excluding Indirect Labor (picked up in model) 34

35 Benchmarking Data: Option #2 General Overhead Rate (Indirect Labor + Non-Labor Overhead) SUMMARY OF GENERAL OVERHEAD General Overhead Rate (% of Direct Labor) Median Source: PSMJ s 2016 Financial Performance Benchmark Survey Report Mean Overall 109.6% 116.2% Staff Size 1 to Staff Size 21 to Staff Size 51 to Staff Size 101 to Staff Size 201 to Staff Size 351 to Architectural Architectural/Interiors Engineering (Prime) Engineering (Sub) Engineering (Survey) A/E Environmental

36 Benchmarking Data: GENERAL OVERHEAD DETAIL (Indirect Labor + Non-Labor Overhead) Option #2 SUMMARY OF GENERAL OVERHEAD Space Expenses as a % of Direct Labor Source: PSMJ s 2016 Financial Performance Benchmark Survey Report Registrations & Licenses as a % of Direct Labor Median Mean Median Mean Overall 14.6% 16.1% 0.6% 0.9% Staff Size 1 to Staff Size 21 to Staff Size 51 to Staff Size 101 to Staff Size 201 to Staff Size 351 to Architectural Architectural/Interiors Engineering (Prime) Engineering (Sub) Engineering (Survey) A/E Environmental

37 Benchmarking Data: Option #2 GENERAL OVERHEAD DETAIL GENERAL OVERHEAD DETAIL Indirect Labor (w/o PTO, BD, IT) Professional Liability Insurance as a % of Direct Labor as a % of Direct Labor Median Mean Median Mean Overall 41.0% 44.0% 2.9% 3.5% Staff Size 1 to Staff Size 21 to Staff Size 51 to Staff Size 101 to Staff Size 201 to Staff Size 351 to Architectural Architectural/Interiors Engineering (Prime) Engineering (Sub) Engineering (Survey) A/E Environmental Source: PSMJ s 2016 Financial Performance Benchmark Survey Report 37

38 Estimate General Overhead from Summary Data O INPUT GENERAL OVERHEAD BENCHMARK AVG. P TOTAL H X O GENERAL OVERHEAD Option #1: Base on Historical Info. Option #2: Use Benchmarking Data (used in this example) 102.6% $315,397 Benchmark Median Firm Size % Median Engineering Sub 96.7% Average 102.6% Calculate General Overhead Direct Labor Costs: $307,404 Benchmarking Data (as % of Direct Labor) Firm Size 1-20: 108.5% Engineering Sub: 96.7% Average: 102.6% (as % of Direct Labor) General Overhead: $307,404 X 102.6% = $315,397 38

39 Operating Overhead Rate Total Operating Overhead Labor Overhead: $143,250 General Overhead: $315,397 TOTAL OVERHEAD: $458,647 Operating Overhead Rate Total Overhead: $458,647 Total Direct Labor Costs: $307,404 Overhead Rate = Total Overhead/ Total Direct Labor Costs Overhead Rate: $458,647 / 307,404 = 149.2% 39

40 Validate Operating Overhead Rate Operating Overhead Rate (Before Incentive/Bonus) Operating Overhead Rate (as % of Direct Labor) 25 th Percentile Median 75 th Percentile Overall 133.2% 157.0% 185.3% Staff Size 1 to Staff Size 21 to Staff Size 51 to Staff Size 101 to Staff Size 201 to Staff Size 351 to Architectural Architectural/Interiors Engineering (Prime) Engineering (Sub) Engineering (Survey) A/E Environmental Source: PSMJ s 2016 Financial Performance Benchmark Survey Report 40

41 Introduction Review - Part 1 Step 4: Estimating Overhead Rate Step 5: Estimating Breakeven Direct Labor Multiplier Step 6: Estimating Profitability + Discussion on Allocation of Yearend Profit Questions and Comments 41

42 Step 5: Breakeven Direct Labor Multiplier Target Direct Labor Multiplier (DLM) 3.31 Calculate the Break Even DLM Direct Labor (basis) 1.0 Overhead Rate (149.2%) Break Even DLM (Approx. 2.50) 42

43 Compare Each Staff Members Direct Labor Multiplier (DLM) to the Breakeven DLM HOURLY HOURLY SALARY DIRECT LABOR MULTIPLIER POSITION EMPLOYEE BILLING RATE (w/o burden) FOR EACH PERSON Prin John $175 $ Admin Julie $60 $ PM Kim $125 $ Jr PM/Eng Tim $85 $ Jr PM/Eng Sue $95 $ Bus Mgr Peggy $60 $ Associate Mike $145 $ Hourly Billing Rate/Hourly Salary = DLM for each Staff Member 43

44 Validate Direct Labor Multiplier Net Direct Labor Multiplier Net Multiplier Achieved/Net Revenues per Direct Labor Dollars Achieved Overall Staff Size 1 to Staff Size 21 to Staff Size 51 to Staff Size 101 to Staff Size 201 to Staff Size 351 to Architectural Architectural/Interiors Engineering (Prime) Engineering (Sub) Engineering (Survey) A/E th Percentile Median 75 th Percentile Environmental Source: PSMJ s 2016 Financial Performance Benchmark Survey Report 44

45 Introduction Review - Part 1 Step 4: Estimating Overhead Rate Step 5: Estimating Breakeven Direct Labor Multiplier Step 6: Estimating Profitability + Discussion on Allocation of Yearend Profit Questions and Comments 45

46 INCOME COST OF GOODS SOLD Step 6: Estimating Profitability GROSS REVENUE $1,300,000 REMIBURSABLE EXPENSES $211,872 REIMBURSABLE SUBS $70,624 NET REVENUE $1,017,504 DIRECT LABOR $307,404 REIMBURSABLE EXPENSES $211,872 REIMBURSABLE SUBS $70,624 TOTAL COST OF GOODS SOLD $589,900 EXPENSES GROSS MARGIN $710,100 OVERHEAD LABOR OVERHEAD $143,250 INDIRECT LABOR $176,036 GENERAL OVERHEAD (RENT, ETC.) $139,360 TOTAL OVERHEAD $458,646 ESTIMATED EARNINGS/PROFIT $251,454 % OF NET REVENUE 24.7% 46

47 Estimated Profitability Check = 0.81 is allocated to Profit OR 0.81/3.31 = ~24.5% included for Profit in the Target DLM 47

48 Validate Operating Profits (Before Incentive/Bonus Payments & Taxes) as % of Net Revenues Net Profit as % of Net Revenues 25 th Percentile Median 75 th Percentile Overall 9.8% 16.2% 24.0% Staff Size 1 to Staff Size 21 to Staff Size 51 to Staff Size 101 to Staff Size 201 to Staff Size 351 to Architectural Architectural/Interiors Engineering (Prime) Engineering (Subconsultant) Engineering (Survey) A/E Environmental Source: PSMJ s 2016 Financial Performance Benchmark Survey Report 48

49 Most Principals Obsess About Achieving a High Utilization Rate Labor Utilization (Chargeability) = Direct Labor $ Total Payroll $ Operating Profit Margin (%) R 2 = Source: PSMJ A/E Financial Performance Survey Percent Utilization Rate 49

50 What About Direct Labor Multiplier? Operating Profit Margin (%) Direct Labor Multiplier = Net Revenue $ Direct Labor $ R 2 = Source: PSMJ A/E Financial Performance Survey Net Direct Labor Multiplier 50

51 What Happens When You Combine Both Factors? Operating Profit Margin (% of Net Revenue) Revenue Factor = Utilization x Multiplier Net Payroll Multiplier = Net Revenue Total Payroll $ R 2 = Source: PSMJ A/E Financial Performance Survey Net Payroll Multiplier (Revenue Factor) 51

52 How Do You Raise the Achieved Multiplier? Direct Labor Multiplier Target Proposal cut Negotiations Over budget Unbillable WIP Uncollectable A/R Achieved Option 1 Raise Prices Raising your prices by 3% will increase your DL multiplier by ~0.1. Option 2 Improve Project Management Reducing project budget overruns by 3% of revenue will increase your DL multiplier by ~

53 Small Multiplier Differences Have Big Impacts on Profits For a typical 100-person firm: Profit impact of 0.1 increase in Revenue Factor = 100 $60,000/year x 0.1 = $600,000/year Or you can add $600,000 to profits the old fashioned way by: Selling $6 million more work Hiring 50 more employees to do the work Renting 15,000 square feet of office space to house the new employees Buying 50 more computers, telephones, etc. for the new employees Achieving a net 10% profit on that work Revenue Factor = Utilization x Direct Labor Multiplier 53

54 Allocation of Year-End Profits Performance Bonuses Shareholder Distribution (ROI) Retained Earnings (Est. $30K -$35K per FTE in Equity; Retained Earnings is only Part of Equity) 54

55 9 Key Metrics METRIC Net Revenue Backlog (Days) Net Revenue/FTE Chargeability (Payroll Dollars) Achieved Direct Labor Multiplier Net Payroll Multiplier WIP (Days) AR Collection (Days) Overhead Rate Operating Profit In Non-Financial Manager Terms, this means Is there enough work available for staff? Is there enough work being invoiced for the number of staff? Is the staff chargeable on project work? Is the staff hitting or exceeding the multiplier established? Combination of the chargeability and achieved direct labor multiplier at a glance. Is time charged to projects being invoiced? Are invoices being paid? Is overhead being managed? When this starts to increase generally it's in labor, if nothing else has changed. Are we profitable? (Before Bonuses and Taxes) 55

56 Inputs for Key Metrics INPUTS Average AR (Accounts Receivable) Average WIP (Average Work in Progress) Backlog Direct Labor (Salary Costs) Gross Revenue Net Revenue (Gross Rev - Reimbursed Exp and Consultants) Operating Profit (w/o bonus or taxes) Total Overhead (w/o bonus or taxes) Total Payroll (Total Salary) Total Labor Hours 56

57 Calculations for Key Metrics METRIC BASIC CALCULATION Net Revenue Backlog (Days) Backlog $/(Net Rev $/365) Net Revenue/FTE Net Rev $/(Total Hours/2080) Chargeability (Payroll Dollars) Direct Labor $/Total Payroll $ Achieved Direct Labor Multiplier Net Rev $/Direct Labor $ Net Payroll Multiplier Net Rev $/Total Payroll $ WIP (Days) Average WIP $/(Gross Rev $/365) AR Collection (Days) Average AR $/(Gross Rev $/365) Overhead Rate Total Overhead $/Direct Labor $ Operating Profit (w/o bonus or taxes) Operating Profit $/Net Rev $ 57

58 Introduction Review - Part 1 Step 4: Estimating Overhead Rate Step 5: Estimating Breakeven Direct Labor Multiplier Step 6: Estimating Profitability + Discussion on Allocation of Yearend Profit Questions and Comments 58

59 REMINDER SPECIAL OFFER DEADLINE: OCTOBER 28, % OFF FINANCIAL PERFORMANCE BENCHMARK REPORT OR 20% OFF THE FULL SET (4) Management Compensation (2016) Staff Compensation (2016) Financial Performance (2016) Bonus & Benefits (2015- published every other year) USE COUPON CODE: BUDGET when you order 59

60 Post Webinar Certificate(s) Credits Webinar Recording Special Offer Part 2: Top-Down Budgeting Made Easy 60

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62 Follow Up Questions or Comments? Questions about the content: Kate Allen, P.E. PSMJ Resources, Inc. Phone: (857) Questions about the credits, certificates, webinar recording, etc.: Olivia Roma, Meetings Manager PSMJ Resources, Inc. Phone: (800) 537-PSMJ (7765) Thank you! 62