Overhead Cost
THE MANAGEMENT OF OVERHEAD COSTS IN CONSTRUCTION COMPANIES
Brian Eksteen1 and David Rosenberg²
¹Professor of Construction Management, Faculty of Economic and Building Sciences, University of Port Elizabeth, P.O. Box 1600, Port Elizabeth, 6000, South Africa ²Senior Lecturer in Cost and Management Accounting, Faculty of Economic and Building Sciences, University of Port Elizabeth, P.O. Box 1600, Port Elizabeth, 6000, South Africa
Costs not directly attributable to or recoverable from production and sales are often loosely referred to as overhead costs. In construction, some of these result from the organisation structure, size and form of the enterprise, some apply more directly to site operations and some may lie somewhere in between. Overhead costs largely represent the enterprise’s operational capacity, including aspects of both physical capacity such as plant and equipment and intellectual capacity such as data, records, expertise, experience and knowledge. The fluctuating nature of the construction market periodically compels enterprises, for competitive and survival reasons, to adopt shrinkage strategies. These may include retrenchments and downscaling of office and other facilities and often represents loss of capacity. When markets again expand, replacing lost capacity is problematic. Budgeting for overheads when bidding and recovering them from contract revenues in a dynamic market is a further challenging factor in optimally balancing overheads against capacity. By means of a review of literature and the results of preliminary surveys among large and mediumsized contractors, this paper presents progress on current research into managing overheads in South African construction enterprises. The objective of the project is to promote productivity through optimal management of overheads.
Keywords: construction overheads; contracting; fixed costs; management.
INTRODUCTION
Unlike most manufacturing industries, the construction industry is unable, or
Brian Eksteen1 and David Rosenberg²
¹Professor of Construction Management, Faculty of Economic and Building Sciences, University of Port Elizabeth, P.O. Box 1600, Port Elizabeth, 6000, South Africa ²Senior Lecturer in Cost and Management Accounting, Faculty of Economic and Building Sciences, University of Port Elizabeth, P.O. Box 1600, Port Elizabeth, 6000, South Africa
Costs not directly attributable to or recoverable from production and sales are often loosely referred to as overhead costs. In construction, some of these result from the organisation structure, size and form of the enterprise, some apply more directly to site operations and some may lie somewhere in between. Overhead costs largely represent the enterprise’s operational capacity, including aspects of both physical capacity such as plant and equipment and intellectual capacity such as data, records, expertise, experience and knowledge. The fluctuating nature of the construction market periodically compels enterprises, for competitive and survival reasons, to adopt shrinkage strategies. These may include retrenchments and downscaling of office and other facilities and often represents loss of capacity. When markets again expand, replacing lost capacity is problematic. Budgeting for overheads when bidding and recovering them from contract revenues in a dynamic market is a further challenging factor in optimally balancing overheads against capacity. By means of a review of literature and the results of preliminary surveys among large and mediumsized contractors, this paper presents progress on current research into managing overheads in South African construction enterprises. The objective of the project is to promote productivity through optimal management of overheads.
Keywords: construction overheads; contracting; fixed costs; management.
INTRODUCTION
Unlike most manufacturing industries, the construction industry is unable, or