Overhead and Profit

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    IMPLAN Support
    Hello Julianne, The answer depends on how you are running your study. For reference: Output = Intermediate Expenditures (IE) + Value Added (VA) Value Added = Employee Compensation (EC) + Proprietor Income (PI) + Taxes on Production and Imports (TOPI) + Other Property Type Income (OPTI) Labor Income (LI) = EC + PI If you are using one of IMPLAN's construction sectors, then your Industry Sales value should equal the full cost of the construction (or Output). The system will use the selected sector's spending pattern to purchase required commodities (this includes both hard- and soft-costs), creating Indirect Effects. In addition, Employee and Proprietor Income will create Induced Effects, and Taxes (TOPI) and Profits (OPTI) will be included in the Value Added and Output results; however, TOPI and OPTI will not generate further impacts as they are not included in the multipliers (see link below for more). Note: IMPLAN's construction sectors do not include purchases of Furniture, Fixtures, and Equipment. These will need to analyzed separately and the costs associated to those purchases should be removed from the Industry Sales value utilized for the construction Event. Explaining the Type SAM Multiplier http://support.implan.com/index.php?option=com_content&view=article&id=364:364&catid=228:228 If, however, you are using purchasing information to impact specific industry purchases (purchases of concrete for example) made by the construction company, then your Events reflect the first wave of Indirect Effects (you are capturing the Intermediate Expenditures of your construction firm). You will need to include a Labor Income Change activity in order to capture the construction worker Labor Income. Depending on how your information is provided, this Labor Income may be a part of the overhead line, in which case you will need to determine exactly what portions are Employee Compensation and Proprietor Income. Impacts stemming from profits are not typically included in such studies, as analyzing the impact of profit spending requires knowing exactly how and where those funds are spent. Regards, IMPLAN Staff
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    JYEE1223
    Hi there Thank you for your response. I was going to run the construction costs in one of the construction sectors. However, a good portion of the construction costs are associated with equipment/material purchases that would be outside the study area, and therefore I would exclude these costs. Excluding these costs and running the Industry Sales/construction costs through IMPLAN, the output has different employee compensation as the client estimated. I am trying to figure out how to get an accurate depiction of construction employment (not estimated by the client), while employee compensation is still similar to what the client has provided. I understand that you can manually change employee compensation, but it is not clear to me that IMPLAN is estimating the correct amount of construction employment when running the industry sales for construction, since employee compensation is so different; therefore, I thought perhaps I should be running it through analysis-by-parts instead. My understanding is that for analysis-by-parts, direct employee compensation and construction costs (excluding employee compensation) are necessary. However, I would still be missing direct employment from construction. Is it still possible to get a construction employment estimate while running analysis by parts? Please let me know if you believe this is the appropriate approach to take or whether a construction employment estimate is necessary from the client in order to do so. Thank you,
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    IMPLAN Support
    Hello Julianne, What sorts of purchases are you removing? The multipliers already incorporate Regional Purchasing Coefficients (RPCs) for material consumed as part of the construction process (concrete and rebar) and soft costs (architectural design services). Therefore, the regional availability for these commodities is already being accounted for by the system and you do not need to adjust your value. If these are instead purchases of equipment that will be used in the operations of the facility once construction is complete, then the costs of those purchases do need to be removed from the construction cost used to measure the impact of building the facility. If you have detailed information regarding how and where these purchases are made, there are methods to incorporate that information as part of your analysis. [u]In regards to Employee Compensation (EC) and Employment:[/u] IMPLAN's estimations of EC and Employment to Output are based on the average of all industries contained within that sector code reporting in that region. IMPLAN uses the industry's Output Per Worker rate to estimate Direct employment for any given Industry Sales/Output amount. As these ratios are averages, they will not exactly match any one firm. To see how the industry average compares to your known firm detail, you can navigate to: Industry Balance Sheet Social Accounts > Balance Sheets > View By: Industry Balance Sheet > Select your sector > view the Commodity Demand tab and the Value Added Tab Output Per Worker Study Area Data > View By: Industry Summary > Locate Industry > Output Per Worker Column Total Gross Absorption represents the portion of Output that goes to Intermediate Expenditures (the purchases of commodities required as part of the production process - concrete, rebar, architectural services etc.). Total Value Added represents how the remaining Output is distributed across Employee Compensation, Proprietor Income, Other Property Income (largely profits), and Taxes on Production and Imports. If your construction firm pays more or less in Employee Compensation per dollar of Output, then the EC estimated by IMPLAN based on the Industry Sales as part of a standard Industry Change activity will necessarily be different. If the construction firm's Output Per Worker varies from the average, then the employment estimated by IMPLAN as part of a standard Industry Change activity will not match their estimates. You can customize your event to match your known values by replacing the estimated Employment and Employee Compensation with your known values. Customizing Events http://support.implan.com/index.php?option=com_content&view=article&id=429 A construction sector Analysis-By-Parts (ABP) is recommended in cases where the analyst knows specific details regarding the construction firms expenditures and employee compensation. For example, if IMPLAN's RPC for a commodity is 75%, but the construction firm has provided information that shows that they will purchase that commodity 100% locally, then the analyst can use ABP to alter that commodity's LPP (which represents RPC in this case) to 100%. Or perhaps the analyst knows that the firm they are studying pays less in employee compensation and more on materials (changing how much of Output goes to Expenditures and how much goes to Value Added). In such a case, the analyst would use ABP to increase the portion of Output that is directed toward expenditures and reduce the amount of Employee Compensation. In such cases, analysts typically come to the model with knowledge of employment, Employee Compensation, and industry spending pattern information. If there are no changes made to the way the industry operates, then ABP analysis results will match those of a standard Industry Change activity (assuming the same Industry Sales/Output, Employee Compensation, Proprietor Income values). If you do use ABP and do not have a Direct Employment value, then you can use the Output Per Worker rate to determine Employment. Divide the total cost of construction by the industry's Output Per Worker value. Study Area Data > View By: Industry Summary > Locate Industry > Output Per Worker Column Regards, IMPLAN Staff
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    JYEE1223
    Hi there Thank you for your response. I am excluding extremely expensive/unique equipment that is known to come from out of state (hundreds of millions of dollars). If I follow Industry Balance Sheet Social Accounts > Balance Sheets > View By: Industry Balance Sheet > Select your sector > view the Commodity Demand tab, it says "Total commodity Demand" RPC is 40.831% for Sector 54. Does that mean the model assumes 40% of construction materials are available within the study area, and would therefore be excluding 60%? My problem with customizing events is that if I input the known employee compensation, IMPLAN automatically fills in employment and industry sales. However, industry sales then doesn't correlate to the overall construction cost. If I then change industry sales to the construction cost (that excludes the expensive construction equipment), then employment changes and employee compensation changes. If I do ABP based off employee compensation and all other nonpayroll expenditures, would there be any way to get direct value add and direct taxes? Thank you,
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    IMPLAN Support
    Hello Julianne, [u]Total Commodity Demand RPC:[/u] Your understanding of Total Commodity Demand RPC is correct (although note that commodities are both materials and services - such as design services); however, note that the value does not reflect any one specific commodity RPC, which could be higher or lower. Concrete may be 100% purchased locally and rebar only 25%. [u]Customizing Events:[/u] Events operate under a particular order of operations. The four possible inputs: Of the four possible inputs (Industry Sales, Employment, Employee Compensation, and Proprietor Income), . 1. Industry Sales (primary input field): Entering a value in Industry Sales generates values in the other 3 fields. If any of the other three fields already contains an input, that input will be replaced with the newly calculated value. 2. Employment: If this is the first value entered, the model uses the input Employment to determine Industry Sales and then determines Employee Compensation and Proprietor Income based on Industry Sales. a. If Employment was not the first input entered, then you can customize your event by changing the estimated employment and the other values will not be re-estimated. The system will prompt a message to let you know that you are customizing your event. 3. Employee Compensation: If this is the first value entered, the model uses Employee Compensation to determine Industry Sales and then determines Employment and Proprietor Income based on Industry Sales. a. If Employee Compensation was not the first input entered, then you can customize your event by changing the estimated Employee Compensation and the other values will not be re-estimated. The system will prompt a message to let you know that you are customizing your event. 4. Proprietor Income: If this is the first value entered, the model uses Proprietor Income to determine Industry Sales and then determines Employment and Employee Compensation based on Industry Sales. a. If Proprietor Income was not the first input entered, then you can customize your event by changing the estimated Employee Compensation and the other values will not be re-estimated. The system will prompt a message to let you know that you are customizing your event. In short, we recommend always entering Industry Sales first and then customizing your event by changing Employee Compensation, Employment, and Proprietor Income. [u]ABP Direct Effects:[/u] The Direct Effects of your summary results will be equal to your known industry values. Output is equivalent to the total cost of the construction project (the value you would use as Industry Sales if you were using a standard Industry Change Activity). If you don't know Direct employment, you can use the Output Per Worker value mentioned previously. Divide your Output by the Output Per Worker value for the construction sector. Study Area Data > View By: Industry Summary > Locate Industry > Output Per Worker Column Labor Income will be the combination of your Employee Compensation and Proprietor Income that you used in the Labor Income Change Activity portion of the Analysis-by-Parts. Value Added is Output less Intermediate Expenditures. If you did not make any changes to the coefficients in the imported Industry Spending Pattern, then your Total Value Added Coefficient should still be the same as that provided in the Balance Sheet. Multiply the total Value Added Coefficient by your Output to determine your Direct Effect Value Added. Social Accounts > Balance Sheets > View By: Industry Balance Sheet > Select your sector > view the Value Added Tab For reference: Output = Intermediate Expenditures + Value Added Value Added = Employee Compensation + Proprietor Income + Other Property Type Income + Taxes on Production and Imports Labor Income = Employee Compensation + Proprietor Income Regards, IMPLAN Staff
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    JYEE1223
    Thank you for your response. This was very helpful. I have a followup question on taxes. Is there any way to split the state versus local taxes in IMPLAN Pro? Or is it possible to see what is being applied for federal, state, local? Thank you,
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    IMPLAN Support
    Hello Julianne, Thank you for your follow up post. Unfortunately, IMPLAN Pro does not have the functionality to split the State/Local Tax results table into State Impacts vs. Local Taxes. Regards, IMPLAN Staff
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