What are the Terms Commonly Associated with Preparing a Budget?

by | Nov 22, 2022 | Books, Liability Risks, Project Management | 0 comments

Budget is the term applied in reference to the amount of money available for payment to the Consultant.

  1. The term “cost” when used in connection with a budget usually refers to the amount of money available to pay for labor (salaries, wages, and overhead related thereto) and other direct costs such as travel, reproduction, etc.
  2. The term “labor,” when expressed as a cost, can refer to only salaries and wages or a combination of salaries, wages and overhead related thereto.
  3. “Overhead” is an expression of costs stated as a multiplier of salaries and wages that includes costs such as required and/or optional employee benefits, office rent and utilities, etc.  The determination of the overhead multiplier is made by the Consultant’s accountant and certified to be true and correct.  Many Clients require that the overhead rate prepared by the accountant be audited for compliance with a specific regulation such as the Federal Acquisition Regulations (FAR).  Many Clients accept the audit prepared for other clients without requiring a separate audit.
  4. “Other Direct Costs” (ODC) are those non-labor related costs required to be expended in the performance of the design and include items such as travel, printing, permit fees, and shipping/mailing.

“Profit” is the term applied to the amount of money that the Consultant expects to be paid that is in addition to its labor, overhead, and ODC’s.

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John M. Lowe, Jr., P.E.
Happy Valley, OR