Your budgeted hourly rate was set when equipment costs, labor, and overhead looked a certain way. That was probably a few years ago. Maybe more.
The rate still runs every estimate. It still prices every quote. And because it's baked into the MIS, it's invisible — the estimator doesn't choose it each time, it just applies.
Here's what that means in practice: when the BHR is wrong, every estimate built on it is wrong in the same direction, by roughly the same amount. Profitable-looking work quietly isn't. The jobs that look like your bread and butter are the ones eroding margin the most reliably, because they're the ones you're running the most.
The predetermined overhead rate is calculated by dividing expected total overhead by expected activity — machine hours or labor hours. Set it once and never revisit it, and every subsequent estimate inherits its error silently. The MIS reports still look clean. The variance shows up somewhere else, usually later, usually in a period-close conversation nobody was expecting to have.
How often does your shop formally revisit its BHRs — and what would it take to make that a regular process rather than a reaction to something going wrong?
How often does your shop formally revisit its BHRs — and what would it take to make that a regular process rather than a reaction to something going wrong?