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ESTIMATING TECHNIQUES FOR OVRHEAD COST. Preliminary analysis in estimating overhead cost requires the answer to question 1.

what is the purpose of the estimate? 2. how accurate is the information about the job? 3. is an estimate of overhead cost really necessary? Careful consideration of overhead cost is necessary when the estimate is to be use for a decision regarding make or buy in many cases, the final decision on whether to make a particular part in the maintenance shop or to buy it from an out side supplier will depend greatly on the treatment of overhead. Distribution of cost to various cost centers within a particular facility may be another reason for requiring careful treatment of overhead cost estimating. In most other situations, the application of an overhead rate to the estimated labor cost for a maintenance job is probably unnecessary and can be very misleading. An overhead cost is one which is not directly attributable to specific job project in maintenance this mean such items as salary supervision, storeroom, operation, shop equipment and facilities, and miscellaneous suppliers. Fringe benefits such as vacation and holiday pay and group insurance are also overhead cost. In order to account for all the cost of operating maintenance department, some means of prorating these general cost to individual job is adopted. Usually this is accomplished by dividing the total overhead cost for a given period by the total maintenance labor hours charged to specific jobs and thus establishing an overhead rate per maintenance direct labor hour. As long as this overhead is recognized as a means for arbitrarily dividing up the general cost, it is a useful accounting tool. But when management decisions are based on cost comparison, it is extremely important to know that the overhead estimate is not accepted as anything more than just that a means of arbitrarily dividing up general cost. For example, suppose it is proposed that a substantial amount of construction work presently done by the maintenance personnel should be contracted to outside firms and that the maintenance force be reduced by 10 employees, in this case the reduction in direct labor cost can be predicted with acceptable accuracy. But dose this means that all overhead cost which has been distributed to this much direct labor will actually be saved, really the only saving will be the cost of items which are literally dependent on hours worked, such as the fringe benefits and a portion, a small portion, of the other costs such as supervisory costs. In actual practice, should this change be made, it would become necessary for the accounting department to recalculate the overhead rate per direct labor hour for their cost distribution, since the total overhead cost would not be reduced in proportion to the reduction of direct labor. TRAINING ESTIMATORS. Application of basic data has some obvious limitations for small maintenance operations and for other situations where the relatively high administration cost cannot easily be justified, we have also pointed out limitations of the pure judgment alone. The method which is not universally applicable is the spread sheet, which is a refinement of slotting, using accurately established standards for benchmarks. These estimates usually are made by the planner, and the planners are usually selected from the ranks of experienced maintenance craftsmen. This raises the next

logical question how does the person who is craftsmen this week become an expert estimator next week? Probably the first milestone in the training of a new planner is the establishing of an estimating concept where the objective is to determine the time required to perform the operation under conditions as they should be, rather than providing for all the contingencies which could happen. One way to establish this concept is as follows, first, pick a relatively simple maintenance repair job with which the new planner is thoroughly familiar, and ask him for a rough estimate of the time required. Write this answer in a circle at the top of the page. Almost always these estimate will be in multiples of 8 man hours. No craftsman is likely to estimate a job to take 3,5 hours. Next, ask the planner to list in detail the steps necessary to perform the job and To estimate the time required for each of these elements in terms of minutes, not hours. You can expect that the total of these minute estimates will be considerably less than the original estimate in hours. The next step is to take the planner into the shop and observe a typical maintenance job in progress, pointing out specific instances of lost time, wait time, and duplication of effort which could have been avoided by good planning and good supervision, and also pointing out that these elements make the difference between a good estimate and a past record. Starting the planners training as outlined above provides unreasonably good basic for developing spread sheets where a trained industrial engineer or outside consultant can be utilized, advanced training of the planner/ estimator can carried out by refining his labor estimating technique to include a breakout of the following categories of labor. Direct productive work(hands-on work discernable in the physical components of the conditions and manning allowances(modify direct work) indirect work (preparation, planning, material, and tools) travel time (to and from job based on job length and complexity) necessary enforced and controlled delays (to be minimized) when the planners training includes the advanced elements, it is frequently recommended that the spread sheets include only the direct work, with the other elements added based on the proposed jobs, work conditions, location, and planning input. In this way, highly accurate standards may be developed where this condition is desired. In all training situations, self correcting procedures should be established to permit full development of the individual. SUMMARY Estimating maintenance cost in involves judgment, forecasting, and predicting this necessitates the use of past and present data as the base from which to start. Two areas of information determine which of many techniques is appropriate to a job (1) the end use of the estimate and (2) the available information about the job. In estimating labor, the first task is analysis, the estimator will make use of judgment, slotting, pert, or labor standards pr unit. In the last category, the estimator may make use of plant or industry wide averages or rations, comparative job standards, specific job standards, operational basic data, and elemental basic data. The amount of time to be invested and the techniques to be used are limited by the two factors end use and information available. In estimating material, the development of rations relating material costs and labor cost can greatly simplify the estimating process.

In estimating overhead, careful consideration must give to: (1) the endues of the estimate, (2) the accuracy of job information, and (3) what portion of overhead cost is truly applicable to the job. The techniques which the estimator uses must be compatible with job requirements so that the results achieved will warrant the time and cost invested in estimating.