YEARLY OPERATING BUDGET Nov 8 2023_final
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University of Illinois, Urbana Champaign *
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495
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Industrial Engineering
Date
Apr 3, 2024
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docx
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4
Uploaded by ChancellorOctopus2529
Nov 8, 2023
DEFINING COMPANY’S YEARLY OPERATING BUDGET Background on Budget and Finance Revenue
An engineer can work 2,000 hours per year. You will need one administrative support staff for every 5 engineers. An average project takes 500 hours of an engineer’s time. Architect/Engineering consultants typically charge a design fee of
5% based on the estimated construction cost, e.g., $10 million building will result in a $500,000 consulting fee. If the company also does the construction management of the building an additional 3% fee is charged ($300,000). If your company is the contractor or a design-build firm then the targeted profit is approximately 5%.
Expenses
For entry level, mid-career, and senior engineers the salaries are $75,000, $125,000, and $200,000 with 80% of their time billable during the year. If you are an AEC firm, you may need to include other positions like project managers, architects, estimators, etc.
On average, office space size should be estimated by the number of employees which requires about 200 sf per employee. Business development and marketing/PR will require at least 1 full-time equivalent person per 15 engineers. For most small/medium-sized companies, a minimum of two people (mid-level and junior marketing person) is required with estimated salaries of $100k and $50k, respectively.
Assignment#4 (Due date – November 22, 2023)
Your company must create a yearly operating budget and present it in a similar format to Table 1 below so someone independent from the company can review your assumptions. Your company is encouraged to do this yearly operating budget in EXCEL for ease of editing and adjusting (see template on Canvas). Your team needs to write down your company’s assumptions and outcomes for your revenue and expenses for the typical year. This assignment should be turned
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into your team’s box account by November 22, 2023. During the November 8 class, you should begin to draft your yearly operating budget and finalize in the subsequent week during the in-class activity time. YEARLY OPERATING BUDGET
Our company yearly operating budget is shown in Table 1 below. The assumptions
for the yearly operating budget are based on our business strategy.
Table 1 – Yearly Operating Budget Summary
REVENUE
Number of Projects 60
Average Gross Income/Project
$240,000
Total Gross Revenue
$5,574,883
EXPENSES
Staff Size (Engineers + Admin Support)
60
Average Salary
$291,667
Total Direct Salary Cost
$2,625,000
Benefits
$
787,500
Profit
$
656,250
Rent
-
Office Size 6000
sf
-
Average Rent 18.09
$/sf
Total Rent
$108,540
Utilities
$3,216
Travel & Entertainment
$300,000
E & O Insurance
$150,000
Marketing/PR (staff, etc.)
$390,000
Business Development (Staff, 3
rd
party)
$325,000
Charities
$32,813
TOTAL EXPENSES
$5,378,319
NET PROFIT/(LOSS)
$9,021,682
(Deliverable is the first-year budget and explanation). You can build a spreadsheet with these categories and paste it into the document.
Revenue
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Our company is expecting $X,XXX,XXX total gross revenue per year from Y projects and an average gross income per project of $ZZZ,ZZZ. Our company overhead is 100% which is a 2.0 multiplier by the employee salary. Our built-in company profit billed to the client is 25%. Therefore, the company multiplier for Overhead & Profit is 2.5 or a salaried employee of $100,000 is billed at $250,000 per year. For the company to be healthy, a profit of $XXX,XXX annually is targeted for both companywide bonuses, cash reserves for growth, and distribution to shareholders.
Expenses
The following section summarizes the annual expenses expected (which may require additional funds to meet cash flow needs if you are a startup…. Direct Personnel
The annual staff size currently is X engineers and Y administrative support staff. The average salary for the engineers is the following: $75k, $125k, and $200k for entry, mid-level, and senior engineers, respectively. The administrative support staff has an average salary of $75k. The total direct salary for the employees is $XYZ. The overhead costs for the company, which include health insurance, retirement, paid time off (vacation and sick leave) and office rent and expenses are 100% of the total direct salary.
Office Space
The office space rent is $V,VVV/ month for ZZZ sf. The utility and other office expenses per sf is $Y,YYY.
Other Expenses
We will have one business development and Y
marketing/PR staff at a total direct cost of $YYY,YYY. Travel, entertainment, and miscellaneous expenses not directly billed to the client is part of the overhead rate. Error & Omission Insurance is required to protect the company and is also part of the overhead charge. The company will provide 5% of profit to charitable causes, which is $RR,RRR. Employees Participating: Name & Email
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