Managing Overhead: Utilization versus Chargeability

PSMJ Resources, Inc.
Posted on: 07/19/19
Written by: PSMJ Resources, Inc.

images (5)-2Utilization—hours or payroll dollars—which one tells the story when it comes to managing labor-based overhead (time spent on non-project related activities)?

A primary approach used by architecture and engineering firm managers to monitor chargeability is reviewing time sheets or time reports for time put to projects. But what if you don’t look at time sheets but you do review the income statements for the firm, the business unit or the team—can you monitor chargeability as well using information on the income statement?

One of the most common entries we see on income statements is raw salaries or wages as a single line item under “Expenses” (or Overhead), which means you have no way of knowing without going back to the time sheets or the time report what the chargeability is.

However, if raw salaries are split between direct and indirect labor costs on the income statement, then you have what you need at your fingertips.

• Direct labor is that portion of raw salaries that can be attributed to projects or the cost of goods sold.
• Indirect labor is the remaining portion of raw salaries that can be attributed to overhead expenses (non-project related activities).
• Chargeability (payroll dollars) = direct labor in $/(direct labor in $ + indirect labor in $).

The danger is that you can fall into the trap of believing that utilization is not a problem for your firm even though your profits are not where they should be. The main culprit is that in most A/E firms the most expensive staff members are the least chargeable.


This is just one example of what you can learn in Financial Management For  A/E/C  Firm Leaders. This hands-on two-day workshop is extremely useful for those who are looking for all levels of financial information – from understanding basic financial indicators your firm should be tracking to interpreting predictive financial metrics for more accurate financial forecasting.  Fortunately, a few tweaks in some key financial metrics can dramatically reduce the negative cash flow and time it takes to generate positive cash flow in a growing firm. 

Register Now!






February 12, 2021


While collaborating in late 2019 on a high-end, single-family home reconstruction in Southeastern Connecticut, architect Hope Proctor and interior designer Caryn Paradis had a..

Read More
January 15, 2021

Recent A/E/C Mergers and Acquisitions in the News

  Here’s a recap of some of the latest A/E/C mergers and acquisitions that have been announced in recent weeks. January 13, 2021 – Full-service architecture, engineering, and..

Read More
January 15, 2021

Looking for Growth in All the Wrong Places…

With a raging pandemic, ongoing market uncertainty, and time that just keeps marching on, you aren’t alone if you are wondering if this is a good time to consider selling your..

Read More