How to calculate the implicit costs

Part of the budget for any proposal must be based on indirect or implicit costs, often referred to as "overhead". If you can not include the overhead costs, your budget may be exceeded by up to 30 percent, depending on the project. This overshoot in a million-dollar construction project can spell disaster for the organization that pays construction. General expenses include expenses that can not be charged directly to the project, such as electricity, supplies from the organization, or administrative assistance.

one

Add the total expenses of the project that are directly billable.

two

Estimate the costs of general expenses, such as administrative assistance and other employee expenses, insurance, travel, taxes, legal fees, telephone and fax expenses, rent, repair, accounting, supplies, public services and advertising. You may find many of these expenses difficult to calculate, but make a rough estimate.

3

Calculate 20 percent of the total billable direct costs. Compare this amount with the estimate of general expenses or implicit costs . Include the largest number in your overhead budget. For example, if the calculation of the implicit costs is less than 20 percent of the total directly billable costs, use the 20 percent figure instead. You can always return the unused funds, but you can find this amount much more difficult to compensate if there is an extra cost.