Controlling Overhead Costs

Parkinson’s Law declares that “Work expands to fill the time available for its completion.” Similarly, the author believes, overhead expenses in many consulting firms have expanded to consume the budget available to meet them. Particularly in recent years, many consulting firms have been eager to raise their overhead rates due to the way in which the fixed fee is computed. While this strategy may work in the short term, by helping firms to more easily meet their operating costs, it is extremely dangerous over the long term, particularly in an era when construction and desgin budgets will be subjected to ever-harsher scrutiny. This article by the founder and president of New York City-based Gandhi Engineering, P.C., argues that keeping overhead as low as possible is (or should be) an essential strategy for today’s engineering firms, and suggests ways to accomplish this, not only in general operating expenses but also in the more difficult areas of indirect labor costs, taxes, and insurance. By employing a variety of broad strategies and small but measurable cost-cutting measures, the firm has defied the prevailing trend and has steadily reduced it’s overhead ratio. This not only helps the firm compete successfully for new clients and business, but puts it in a stronger position during a general downturn in the economy.