Monday, October 11, 2010

MikeDDKing challenges "consultant's" opinions on employee cost analysis for P2O

How can you come up with estimates like this without even specifying the required skills for a position?

Furthermore, you say "Even someone making $40-$50k would "cost" $60-$70/hour to the employer." That is just ridiculous! Someone making $40-$50K/year is earning $20-$25/hour. I would imagine most positions at JBII are going to be for employees. Even for very good benefits plus other employment costs you probably are talking about $20K in additional annual expenses per employee. That adds another $10/hour which would bring the total to say $30-35/hour in your example of someone hypothetically making $40-50K/year. That is a far cry from the $60-70/hour you state for someone making $40-50K. I would imagine that most positions in a P2O plant (operating 2 or more processors) aren't going to be making $40-50K/year. My bet is it is more like $35K.

I think the problem with your analysis is that you are comparing to engineering positions where a company is doing contract work for another company. Certainly there a company might be charging $100+/hour as that kind of contract work is expensive. The engineer is perhaps making $100K. There is an additional $30K in additional expenses for benefit, training, and other employment costs. The equipment required for one engineer may be $100-$200K or more depending upon the discipline. Lets use $175K and say the equipment is amortized over 5 years which comes out to $35K/year without considering interest costs. Finally, the company doing contract works wants to make some money and perhaps that figures out to a 50% markup. This all figures out to ($100K+$30K+$35K) * 1.5 / 2000 = $124/hour. So, yeah, an engineer using tools provided by a contracting outfit could cost more than $100/hour but JBII doesn't need someone like this.

So, if you want to start estimating employment costs, why don't you start by stating what you think the qualifications for those positions need to be? Otherwise, the analysis is just garbage in, garbage out.

#1 As I said, let's talk about the job requirements before estimating numbers.

#2 I really doubt most people uses numbers that high for overhead for internal employees. Also, it depends upon what you are considering in overhead. Unless we do a total cost analysis for P2O operations it is silly to be talking about what you consider in overhead because others might put those costs in different buckets.

#3 "The place worked for in the internal Project Management group simplified everything to be $100/hour. I can't justify it if it is a simplification, but I can detail how the more complicated consulting model works." That is the problem. You are talking about a consulting model. If we want to talk about the rates for URS to do some consulting to start up a new P2O site, then that would make sense. If we are talking about a fork lift driver to dump plastic into a bin once they are operating, then it is useless. Again, we need to start with the position requirements. Otherwise, it is garbage in, garbage out.


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