Overhead Pains

October 1, 2001
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Overhead items may be inevitable, however, there are ways to make them tolerable.



Some ideas on how to reduce your operating costs.

There are factors to running a business that are enjoyable. And there are factors to running a business that are not. For many, one of those not-so-enjoyable factors is overhead. Items in this class may be inevitable, however, there are ways to make them tolerable. Here are some things to consider.

The Small Stuff

The first thing to do in evaluating the impact of overhead costs of your business is to define what those costs are. Expenses vary among businesses, so it is important to pinpoint what your firm uses to run its operation.

Take a walk through your workplace. Jot down any little thing you see: desk and overhead lights, telephones, office equipment, two-way radios, etc. Then break those items down into subcategories containing items needed to run them. For instance, your telephones require telephone service, both local and long distance. Your office equipment requires software of many types, Internet access, cables and other accessories.

Now take that list and rank the items in descending order of expense. This prioritized list will help you to examine which costs are feasible to reduce. Don’t dismiss any item as impossible to reduce until you have analyzed it fully. And don’t drop expenses that contribute significantly to the long-term management of your operation. According to the Small Business Administration (SBA), many companies, for instance, drop employee training when cash is tight. It might be better to find lower-cost training while business is slow and more time is available. Otherwise you might fall behind the competition when the economy picks up, especially if the competition did not cut back on these types of important long-term expenditures.

Research ways to cut your necessary costs. Owning your phones is usually more advantageous than renting, especially when you put the savings into phone services that provide more effective operation, the SBA suggests. Compare pricing among several local and long distance providers. Ask about volume discounts for certain time periods, to particular geographical areas, and to specific phone numbers you know you’ll use often.

How about your office building? Question any abnormally high heating and cooling bills, add insulation, replace old air conditioning with high-efficiency models and wrap hot water heaters. Convert to fluorescent lighting that will garner considerable savings. Don’t pick up any light, though. Consider the effects of potential glare and even lighting on work spaces. It’s pointless to save money on lighting only to increase your labor costs because of fatigued and inefficient workers.

Shop Around

This includes both your office building and work vehicles. Compare your rent payment with what you might pay if you moved. Ask your landlord if your lease can be renegotiated. Signing a longer lease may get you a price break. The SBA also recommends looking for a landlord that will pay off your current lease and cover your moving expenses should you choose to move. If you own your building, refinancing at a lower interest rate or over a longer term will reduce your payments.

When deciding on a lease versus a purchase, look at the big picture. In the end, the total cost of a vehicle may be less with a purchase over a lease, but leasing has its advantages. Monthly payments on a lease are usually lower than car loans, are often tax-deductible and free credit lines for other uses. Buying a vehicle yields a higher initial cost and higher insurance rates. However, when you own your vehicle, there is no limit on mileage and no termination penalties.

You can also shop for cheaper insurance; the rates vary widely. Know precisely what you’re getting in your particular policy, and deal with an “A” or better rated company, the SBA recommends.

Investigate your banking services, too. Evaluate cutting and adding services. Look into combining your checking accounts to save service fees and earn higher interest on balances, or qualify you for free checking.

Do a Head Count

Determine your ideal number of employees by comparing your needs during your slackest times with your average days. Staff for your minimum needs as long as that level will not compromise service most of the time. It’s less costly to pay over time or bring in temporary help during peak periods than to keep unnecessary employees on the payroll. Consider “renting” employees for busy times.

Survey Unlimited, an Auxier, Ken., company providing field crews for limited periods, requires a minimum service agreement of one month, but there is no limit on how long a crew can be implemented. Mark Bustle, Survey Unlimited’s president, says the longest time a Survey Unlimited worker was “staffed” is six months.

Crews available from Survey Unlimited have experience in construction work, topography, boundary, route surveys, cell towers and mining. Field crews are available at an hourly rate ranging from $82.50 to $126.50 depending on the area. There is no overtime to be paid. Common crews include a party chief and an instrument man, and a conventionally equipped work truck with cell phone. GPS-equipped vehicles are also available for an additional $40.

Survey Unlimited covers all costs of employee wages, taxes, insurance, truck fuel and lodging, all of which is detailed in the service agreement between client and Survey Unlimited. Bustle says the insurance includes a $2 million general liability coverage and a $2 million umbrella policy plus the required workers’ compensation coverage.

You can save even more money if you just need workers but have the equipment for them. Survey Unlimited offers field crews without equipment for a lower price.

“We’re just like a temp agency,” Bustle says. "It's just like companies that call places that rent a secretary. They get what they need. It’s the same way we work.”

Milton Denny, PLS, and POB contributing editor, says he thinks the idea of fewer people and more technology is only a means to an end. He suggests the best way to reduce overhead is for workers to simply do better work, saving time on all ends of input and output.

"Some field employees are doing their work too fast,” Denny says. “Instead of gathering the most data, gather the most intelligent field data, including layering, color coding and digital pictures of the site." He suggests surveyors should gather more detailed data for a more complete field survey.

Denny agrees with the old saying that “an ounce of prevention is worth a pound of cure.” “Just slow down the field work, which in turn will speed up the office work and result in a better, more cost-effective final product,” Denny advises surveyors. “It'll help your bottom line.” Denny also says that surveyors should take lessons from GIS specialists, who work with the best products, including excellent field coding software.

Train, Equip and Talk

Studies show that the costs and salaries of people and related expenses (taxes, insurance, etc.) comprise upwards of 70 percent or more of a firm’s total expenses. That should be no surprise as it is actually the hours and talents of those people that firms “sell,” according to Michael A. Webber, an A/E firm specialist from Downers Grove, Ill.

“How well people are trained, motivated and then utilized, whether on projects or not, is the most important factor determining whether any profit or value will be generated,” Webber says.

Getting the most out of your employees is key to reducing overhead, according to Webber. Each firm must evaluate what it brings in and puts out. Webber suggests using the Utilization Rate equation (shown below), a straightforward indicator of the proportion of a firm’s total manpower that goes toward project effort.

Utilization Rate =
Direct Labor
Total Labor

(where Total Labor = Direct Labor + Indirect Labor)

Firms can evaluate their strengths and weaknesses by measuring and reviewing actual utilized labor versus paid labor on a monthly basis, thus pinpointing areas in which improvement is needed. A firm’s overall Utilization Rate should be around 65 percent to run efficiently.

And it’s no news that you need to keep up with the latest in hardware and software to keep up with competition and to produce the best product for repeat business.

Tom Barger, PLS, survey manager at Pacific Engineering Design, LLC in Tulsa, Okla., says his company utilizes current software and equipment including refectorless robotic total stations, GPS, Windows CE data collectors and digital levels. “Keeping current is more cost-effective than doing major upgrades less often,” Barger says.

Do some checking off the clock. Ask work associates what they are doing to cut overhead expenses the next time you attend a state society event. Post your inquiries or tell another surveyor about your latest tip to cut costs on an industry bulletin board like www.rpls.com. Networking could find you a better bookkeeper, software program or bank so your business does well should the economic tide turn again.

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