No….MLB is not Major League Baseball, although I’m sure that is what caught your attention. I’m watching game six of the World Series as I type, and the Cardinals just stranded two men on base at the top of the 2nd inning. (Sorry TM!)
MLB is the foundation of all financial measurements for product costs:
M = Materials (the cost of parts used to build your product)
L = Labor (the cost to hire people to build your product)
B = Burden (the cost of the rest of your company, allocated to this product)
Before you tune out and stop reading…please hang on. This concept applies to every project…even in non-profit organizations!
When your manager asks how much the new product costs, how do most people answer? They give a “Materials Only” type response. They overlook all the other costs and only report how much they spent on parts.
Those who are more savvy will give a “Material + Labor” answer. They recognize how expensive compensation costs are for the company…and they need to be included in any report of product costing.
But only a few understand that “Burden” (also known as “Overhead”) is a major expense for any product…and any project. Burden includes a multitude of costs such as:
- The cost of staff who are not related to building the product
- The cost of the building, utilities, and insurance
- The cost of the nice landscaping and the company signage
- The cost of the office furniture, phones, and computers
- The cost of the copy room, paper, and other supplies
- The cost of the cleaning service, HVAC repairs, and fresh paint
- The cost of advertising
- The cost of legal services
- The cost of interest on loans
- The cost of travel
- The cost of storing all that inventory in the warehouse
- The cost of accounting
- The cost of ….
Are you starting to get the clear picture?
Burden/Overhead is a huge cost to operating any organization…even churches. The next time you are presenting the costs for your project, be mindful that there is much more expense than the parts you will be purchasing. You might not be expected to calculate them for every project, but never forget the huge costs underneath your project.
Thanks for listening. (It’s now 3-0 Red Sox)