BENCHMARKING YOUR BUSINESS: Don't Be Fooled by MORS

Multiple overhead recovery system (MORS) method calculates general and administrative (G&A) overhead in a bid by multiplying four predetermined percentages by the material, equipment, subcontractor and labor costs. Like in other methods, MORS multiplies components of direct costs by percentages or decimals to calculate the overhead for a bid or service price. 

The MORS method typically adds 10 percent to material costs in a bid, 25 percent to equipment costs, 5 percent to subcontractor costs and a predetermined percent to field labor and burden. The percent applied to labor and burden ranges from 35 to 95 percent depending on budget and size.

WHY MORS DOESN’T WORK. Job A requires labor for one month. Its price should include a month of G&A overhead cost or $10,000. However, MORS adds $18,770 to the bid for G&A overhead. It overstates G&A overhead by almost $9,000. Job B requires the entire field labor force for four months. The G&A overhead costs should total $40,000 but MORS adds $39,080 to the bid to cover G&A overhead costs. It is close but it understates G&A overhead costs by almost $1,000. This is pretty close but it still is not accurate.

ANALYSIS. I could show jobs where the MORS markups in bids are right on, too high or too low. The issue isn’t the precise markup percentages used in MORS. The mathematical problem arises because we are multiplying the components of direct costs by percentages. Methods like MORS make the mathematical mistake of calculating G&A overhead based on multiplying direct costs by percentages. It isn’t accurate.
 
Another problem is the markups added to material, equipment and subcontractor costs – 10, 25 and 5 percent, respectively. These have absolutely no mathematical justification. In the late 1980s I taught the MORS estimating system in workshops all over North America. I know the MORS method pretty well and I can say no one has ever come forth with any mathematical justification for these percentages.

Jim Huston is president of J.R. Huston Enterprises, a Denver-based green industry consulting firm. Reach him at 800/451-5588, benchmarking@gie.net or www.jrhuston.biz.