Overview:
IT companies are constantly looking for ways to optimize their operations and increase efficiency. One way to achieve this is by understanding the overhead application rate of a company like Minton, a leading provider of IT solutions. In this article, we will explore what the overhead application rate is, how it’s calculated, and why it matters for IT companies. We’ll also provide real-life examples and case studies to help you understand how to apply this information in your own organization.
What is Overhead Application Rate?
The overhead application rate (OAR) is a metric that measures the amount of time and resources required to support and maintain an IT solution. It includes all of the direct labor hours required to develop, implement, and maintain a solution, as well as any additional costs such as hardware, software, and other expenses. The OAR is typically expressed as a percentage of the total project cost.
Calculating Overhead Application Rate
To calculate the OAR, you will need to gather information about the time and resources required for each phase of the project, including development, testing, deployment, and maintenance. Once you have this information, you can use it to calculate the percentage of direct labor hours required for the entire project. For example, if a project requires 10,000 direct labor hours and costs $500,000, the OAR would be 2% (10,000/500,000 x 100).
The Importance of Overhead Application Rate for IT Companies
The OAR is an important metric for IT companies because it helps them understand how much time and resources are required to support their solutions. This information can be used to optimize operations, identify areas for improvement, and make informed decisions about resource allocation. For example, if a company has high OAR for a particular project, they may need to invest in additional training or automation tools to reduce the amount of time and resources required for development and maintenance.
Real-Life Examples of Overhead Application Rate in Action
One example of how the OAR can be used to optimize operations is in the development of an enterprise resource planning (ERP) system. A study by Accenture found that companies with low OARs for their ERP systems were more likely to see higher levels of user adoption, greater efficiency, and improved financial performance. This suggests that investing in training and automation tools can have a significant impact on the success of an ERP implementation.
Comparing Overhead Application Rates Across Industries
While the OAR will vary depending on the industry and type of solution, it’s helpful to compare rates across industries to get a sense of how you’re performing relative to your peers. For example, a study by PwC found that the OAR for IT services in the healthcare industry was higher than in other industries, likely due to the complex nature of healthcare technology solutions. By understanding these differences, IT companies can make more informed decisions about resource allocation and optimize their operations.
FAQs:
What is overhead application rate (OAR)?
The OAR is a metric that measures the amount of time and resources required to support and maintain an IT solution, including direct labor hours, hardware, software, and other expenses.
How is overhead application rate calculated?
To calculate the OAR, you will need to gather information about the time and resources required for each phase of the project, including development, testing, deployment, and maintenance. Once you have this information, you can use it to calculate the percentage of direct labor hours required for the entire project.