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Helping Contractors Grow Profitably

Finance
Indirect Costs

How confident are you that all your costs are accurately reflected in your estimates and job costs?

Indirect Costs

Estimating accuracy, job costing and profitability are all improved through indirect cost management including cost controls and consistent methods of allocation to jobs. 

The very definition of indirect costs is widely open to interpretation and there is no “standard” line between what is a direct cost, an indirect cost or overhead.  What is important is that indirect costs are consistently managed with processes specific to your company and aligned with both estimating and job costing.   

  • Indirect Cost Types:  Identify the different types of indirect costs with a clear definition.  Types may include health benefits, paid-time-off, equipment, shop, tools, safety, project management costs, etc.   
  • Cost Accounting:  Pools of indirect costs are setup within your accounting system that allow for accurate reporting of indirect costs including how much has been recovered via job costs. 
  • Recovery Rates:  A recovery method and rates are established for each type of indirect costs.  This may be a rate per hour, a percentage of job costs, etc. 
  • Clear Communication:  The definition of both what is included in these indirect cost pools as well as the recovery rates needs to be clearly communicated to all Estimators, Project Managers and other management. 

Effective indirect cost management is the core to accurate job costing which is the heart of a contractor’s financial management systems.

If applicable, indirect costs are also core to effective billings on GMP or IPD projects.  In the unfortunate event of a claim, indirect costs are often missed if they are not accounted for consistently and accurately.   

We have significant experience, models and tools for helping Contractors more effectively manage their indirect costs.