Cost Estimate and Profit Margins

[foreng]

I am currently working on an estimate to use in a rate negotiation with an owner/operator of a machine that has no Blue Book rates. Upon doing some research I have calculated the estimated ownership (fixed) and operating (variable) costs, and a general overhead value. The operating costs include an operator wage and a wage loading. I am stuck on how to add profit and risk to this estimate? Some estimates I've found apply profit and risk to the total ownership and operating cost portion (e.g. 10%-15% of ownership+ operating), while others have removed the wage component from the profit calculation and add it in at the end ((10%-15% of ownership + (operating-wages))+wages). Does anyone have any suggestions, keeping in mind I'm trying to get the lowest (logical) rate possible in order to start the negotiation (which I am sure will be higher by the end of it)?

 

[Hagedoorn]

Just apply the risk and profit over the total estimation excluding your contingencys.

10% -15% for profit and risk is a bit high.
use for profit and risk separete values.

And make a good contingency estimate.

Hope this will help you.

Raymond Hagedoorn
Cost Engineer

Raymond Hagedoorn
Cost Engineer