Do you DPE and Overhead

By Andrew Sam, Axium Certified Consultant

I recently completed an Online Training Session on the “How and Why of DPE and Overhead.”

Adding the cost of Direct Personnel Expenses(DPE) and Overhead to project costs is not a new concept, but it is a rather important one.

Direct Personnel Expense (DPE): also known as payroll burden is personnel-related overhead costs that you add to labor cost for project reporting, this includes Vacation, Sick Leave, Insurance, Payroll Taxes, Pension, etc.

Overhead: which normally does not include DPE, are any operating expenses not directly related to employees, this includes Rent, Utilities, Office Expenses, etc.

These are often significant costs to an organization that are in addition to the salary paid to the employees. When not added to the raw labor costs of projects, DPE and Overheadcan become “hidden” costs to Project Managers when they review project reports. The profitability of projects will be overstated.  Your DPE and Overhead Costs are very important for accurate evaluation of project profitability.

It is relatively easy to incorporate your DPE and Overhead costs to project reports and Axium’s software for engineers and architects, Ajera, makes it even simpler.  There are essentially three to four steps to calculating your DPE and Overhead percentages that will be applied to your project costs:

1. Gather the information from your Profit & Loss Statement: All the information you need to calculate your DPE and Overhead percentages are on the Profit & Loss Statement. The use of account groups can make it even simpler to identify the information to use.
2. Calculate the DPE percentage with the use of a formula
3. Calculate the Overhead percentage with the use of a formula
4. Apply to Project costing

It is becoming more and more common that firms are calculating just one overall percentage that incorporates both the DPE and Overhead, combining steps 2 and 3.

Once established your method of calculation is a repeatable exercise and should not take long to execute. It is important to revisit these percentages, at a minimum, on an annual basis.

The new features of Ajera also make it easier for us to incorporate the DPE and Overhead costs to our projects.   Ajera now offers the ability to:

• Recalculate our DPE and Overhead costs for past periods
• Distribute the DPE and Overhead costs based on hours to the projects
• Distribute the DPE and Overhead costs based on costs to the projects

Having a good handle on the DPE and Overhead costs is critical to achieving a high profitability at engineering and architecture firms. Carefully evaluating and managing these costs on a normal basis is the first step. As important as it is and also as easy as it is to do, Do You DPE and Overhead?

It is relatively easy to incorporate your DPE and Overhead costs to project reports and Ajera makes it even simpler! There are essentially three to four steps to calculating your DPE and Overhead percentages that will be applied to your project costs:

1. Calculate the DPE percentage with the use of a formula
2. Calculate the Overhead percentage with the use of a formula
3. Apply to Project costing

It is becoming more and more common that firms are calculating just one overall percentage that incorporates both the DPE and Overhead, combining steps 2 and 3.

Once established your method of calculation is a repeatable exercise and should not take long to execute. It is important to revisit these percentages, at a minimum, on an annual basis.

Ajera software makes it easier for us to incorporate the DPE and Overhead costs to our projects. Ajera offers the ability to:

• Recalculate our DPE and Overhead costs for past periods
• Distribute the DPE and Overhead costs based on hours to the projects
• Distribute the DPE and Overhead costs based on costs to the projects

Having a good handle on the DPE and Overhead costs for architecture and engineering firms is critical to achieving a high profitability. Carefully evaluating and managing these costs on a normal basis is the first step.

As important as it is and also as easy as it is to do, Do You DPE and Overhead?