Cost of an Hour of Service Webinar

Transcription

1 MSCA Presents: Cost of an Hour of Service Webinar Presenter: Steve Smith December 15, 2010

2 Purpose for Participating? 2

3 Objective / Mission / Goals Objective = Give you a detailed understanding of the Cost of an Hour Mission = Create a framework for analyzing labor costs on an on going basis Goals : Control Labor Costs Improve Labor Mix Decisions Defend Billing Rates (Internally and Externally) 3

4 Direct Labor is our largest cost component Usually double the next largest cost component. Is very controllable. Paid in small increments. Requires support costs: Dispatchers Computers and Software Trucks Forms 4

5 Calculating Total Hourly Cost Are you involved? Usually requires accounting help Should be consistent year-to-year Do not be too conservative Is critical on T&M and cost-plus jobs 5

6 Here is What We ll Cover Step No. 1 a) Direct Costs of the Package b) Other Hourly Direct Cost Step No. 2 Weighted Average Total Direct Costs Step No. 3 Indirect Costs (Indirect Burden) Step No. 4 Analysis & Updating of Labor Costs 6

7 Step 1a) Direct Costs of the Package 1. Total Union Package (taxable) Base Wage Over Scale Wage Sick / Vacation / Holiday 2. Fringe Benefit Costs Pension Health & Welfare Education & Training Industry Fund Other 7

8 Step 1b) Other Direct Costs (1 of 3) 1. Total Union Package (taxable) Base Wage Over Scale Wage Sick / Vacation / Holiday 2. Fringe Benefit Costs Pension Health & Welfare Education & Training Industry Fund Other 3. Payroll Taxes & Insurance FICA Unemployment (State and Federal) Disability Insurance Workman s Compensation Insurance Liability Insurance Other 8

9 Step 1b) Other Direct Costs (2 of 3) 1. Total Union Package (taxable) Base Wage Over Scale Wage Sick / Vacation / Holiday 2. Fringe Benefit Costs Pension Health & Welfare Education & Training Industry fund Other 3. Payroll Taxes & Insurance FICA Unemployment (State and Federal) Disability Insurance Workman s Compensation Insurance Liability Insurance Other 4. Truck Costs Lease or Depreciation Insurance Fuel / Repairs / Licenses 5. Small tools Annual Costs per Hour 9

10 Step 1b) Other Direct Costs (3 of 3) 1. Total Union Package (taxable) Base Wage Over Scale Wage Sick / Vacation / Holiday 2. Fringe Benefit Costs Pension Health & Welfare Education & Training Industry fund Other 3. Payroll Taxes & Insurance FICA Unemployment (State and Federal) Disability Insurance Workman s compensation Insurance Liability Insurance Other 4. Truck Costs Lease or Depreciation Insurance Fuel / Repairs / Licenses 5. Small Tools Annual Costs per Hour 6. Department Expenses Dispatcher and Billing Personnel Cell phone, Pager, Notebook Uniforms Forms Computer Systems and Software 10

11 Step 1) Total Direct Costs General Certified 4th Period Package components Foreman Jny'man MES Apprent Total pkg. (taxable) $42.31 $33.85 $24.00 $24.68 Avg. Over Scale Wage $2.85 $2.85 $0.00 Fringes Subtotal Package Direct Costs Other Direct Costs Payroll tax & insurance Truck charge Small tools Subtotal Other Direct Costs Direct Dept Expenses Dispatcher Nextel/Cell Phone/Pager Uniforms Forms Computer Systems Subtotal Direct Dept Exps All Direct Costs Subtotal $81.35 $71.24 $54.84 $

12 Updating Total Direct Costs It is important to do two things: 1) Update this calculation each time the package changes 2) If you pay technicians over scale you need to calculate what your average over scale per hour cost is 12

13 Average Over Scale Pay Calc Hourly Actual Over Classification/Name Pay at Hourly Scale Scale Pay Amount General Foreman (Supv) $5.19 Foreman No $2.75 Foreman No $2.75 Cert. Journeyman No $5.00 Cert. Journeyman No $5.00 Cert. Journeyman No $5.00 Cert. Journeyman No $5.00 Cert. Journeyman No $1.07 Cert. Journeyman No $1.05 Cert. Journeyman No $1.05 Cert. Journeyman No $1.05 Journeyman No $1.08 Journeyman No $1.00 Total Over Scale Average Over Scale Pay $

14 Step 2) Weighted Average Total Direct Cost Hourly Head- Direct Weighted Classification count Costs Total General Foreman (Supv) 1 $81.35 $81.35 Foreman Cert. Journeyman Journeyman MES MEST Apprentice Apprentice Apprentice Apprentice Apprentice Total 17 $1,134 Weighted Hourly Direct Cost $

15 Step 3) Indirect Costs (Indirect Burdens) Now that we have: 1) Total Direct Costs 2) Weighted Average Cost We cannot finish the Cost of an Hour Calculation because Something is Missing? 15

16 Step 3) Indirect Costs (Indirect Burdens) How about the effects of Unbillable and Non-productive Time These are the Silent Killers of Service Profit 16

17 Step 3) Indirect Costs (Indirect Burdens) 1) Measuring Field Productivity Year- to -Date (Assume 16 Techs plus 1 Supervisor) Billed vs. Paid Hours Week 1 Week 2 Week 3 YTD Total Hours Paid (17) ,030 Spvr Time, Non-billable Downtime Categories Truck Repairs Callbacks Warranty Training (Reg. Work Hrs.) Counseling No Charge Sales Assist Field Hours Non-billable Subtotal All Non-billable Total Hours Billed ,868 Productivity Percentage 92.9% 93.5% 89.8% 92.0% 17

18 Step 3) Indirect Costs (Indirect Burdens) 1) Measuring Field Productivity Annualized (Assume 16 Techs plus 1 Supervisor) Billed vs. Paid Week 1 Week 2 Week 3 YTD Annualized Total hours paid (17) , Spvr Time, non-billable ,664 Downtime categories Truck repairs Callbacks Warranty Training (Reg.Work Hrs.) Counseling No charge sales assist Field Non-billable ,144 Subtotal non-billable ,808 Total hours Billed ,868 32,379 Productivity Percentage 92.9% 93.5% 89.8% 92.0% 92.0% 18

19 Step 3) Indirect Costs (Indirect Burdens) 2) Calculating Burdens Field Techs a) Unbilled hours - 12 months 1,144 b) Weighted hourly costs $66.70 c) Unbilled labor costs $76, d) Billable hours - 12 months 32,378 e) Per hour indirect labor burden $2.36 Headquarters/Main Office a) Unbilled hours - 12 months 1,664 b) Weighted hourly costs $66.70 c) Unbilled labor costs $110, d) Billable hours - 12 months 32,378 e) Per hour indirect labor burden $3.43 Total Indirect Labor Burden $

20 Step 3) Indirect Costs (Indirect Burdens) 3) Total Cost of an Hour General Foreman - Fully Burdened Cost Step 1 Direct Costs - Straight-time Only Total Union Package (Taxable) $42.31 Avg. Over Scale $2.85 Fringes Payroll Tax & Insurance 8.19 Truck Charge Small Tools 0.91 Department Expense Dispatcher/Billing Personnel 1.05 Nextel/Cell phone/pager 0.65 Uniform 0.35 Forms 0.29 Computer Systems 2.85 Direct Cost Subtotal $81.35 Step 3 Indirect Costs - Labor Burden Field Techs a) Unbilled hours - 12 months 1,144 b) Weighted hourly costs $66.70 c) Unbilled labor costs $76, d) Billable hours - 12 months 32,378 Per Hour Indirect Labor Burden- Part 1 $2.36 Headquarters/Main Office a) Unbilled hours - 12 months 1,664 b) Weighted hourly costs $66.70 c) Unbilled labor costs $110, d) Billable hours - 12 months 32,378 Per Hour Indirect Labor Burden- Part 2 $3.43 Total Indirect Labor Burden $5.78 T otal Labor Costs $

21 So What is a 1% Improvement in Productivity Worth? Annualized Hours 35,187 Percent Improvement From 92% to 93% 1.0% Hours Weighted Average Hourly Direct Cost $ Hourly Indirect Burden $ 5.79 Weighted Average Hourly Total Cost $ Cost Impact $ 25, Markup 25% Additional Revenues and Profit $ 31,

22 Questions? Contact Steve Smith at Go to to download archived webinar and slides 22