“Hot Costs” – a big part of a Film Production Auditor’s Job
February 17, 2010 29 Comments
As of Sept 2, 2013 I finished an online Hot Cost Course.
For more info see this short 2 minute YouTube Video:
I wrote a longish email to a young man who wanted to know a few things about my workshops and one of the things he raised was the Hot Cost – a daily comparison to budget done by the Production Accountants. I spent some extra time describing it because I don’t include it in my workshops (yet, anyway) and I wanted him to understand why.
I decided to post my answer to him on my blog for all to see. Here it is:
The principle of a Hot Cost in film production accounting is to compare the actual costs of the previous day’s shooting with the budgeted costs for a day of shooting. The Hot Cost is meant to be measuring only within the scope of the on-set shooting crew, cast, footage/processing and catering. I like to sneak things into the Hot Cost that I know are over-budget, like any equipment or off-set riggers, etc. Although, that’s not it’s true purpose.
In the early days, say early to mid 90’s, the Hot Cost was meant to be just that – some quick calculations done manually on the back of the penciled copy of the DPR (Daily Production Report). The UPM and I would sit together and quickly round out an average labor cost for the Electric’s, an average labor cost for Grips, etc right through the list of on-set departments per the DPR, with maybe a little more of a cost accounting schedule for Transpo and Cast. It really only took about 1/2 hr. Then, a couple of the Majors started getting fussy and insisted that the Hot Cost results go into the Cost Report BEFORE I had any meetings with the Line Producer/UPM. That’s when it became more of a precision thing because Producers will always challenge an over-budget line item, and the Studio gets upset if you miss an over-budget line item. Now, you’re right, a chunk of the Production Accountant’s day goes to fussing with the Hot Cost, simply because so many people use it as a crutch – now it’s often used as a Daily “Cost Report”, even though that’s not it’s original purpose at all – and indeed is an impossible purpose given the scope of the Hot Cost.
If you have a “usual” hot cost front page, like the ones that Disney and Universal use, then you can build Excel worksheets that feed that. This saves an enormous amount of time for the Production Accountant during the shooting period, but it means that you need to be an Excel junkie. Sometimes the studios only want to see the front page without the supporting schedules, and sometimes Line Producers/UPM’s refuse to believe the Hot Cost without supporting schedules, so you need to have it all.
So…. I guess what I’m saying is that the Hot Cost has become an Excel series of side schedules prepared every day by the Production Accountant.
I have developed a series of said schedules that I massage for every show – for the different chart of accounts and for every geographical location (needs lots of prep time or I end up working until midnight several nights in a row right before the first day of shooting). It has a worksheet for just about every function related to labor and each worksheet feeds the lead page. The intention is to automate the estimated pay hours, and compare the resultant cost with the budgeted cost, for:
-every crew member on the floor,
-every fixed category of Transpo who worked,
-and cast member who worked that day,
-every line-item in the budget classified as “ManDays” (sometimes called “Dailies” a slug line saying 25 man-days without much thought put to it),
Then do a variance calculation as compared to the budgeted day.
Remember to keep in mind that there are 2 kinds of variance:
– Hourly variances worked (also in this type of variance would be the person who was budgeted at one hourly rate then is being paid at a different hourly rate – rare, but it happens)
– Volume variance (i.e. more crew hired on for that particular line-item)
You can imagine that if you had to do all of that with a calculator every day, it would be a difficult task on anything over 50 to 75 crew and a few cast. Note that most feature films have double that on an easy day.
Throw into the mix an inexperienced AD (assistant director) team who aren’t promptly getting you the in-out times of the crew/cast and you are up the proverbial creek.
It’s a big job to teach someone a course on “How To Make A Hot Cost”. Not only is there a lot to learn about payroll (understanding SAG, DGA, IATSE in different circumstances in different geographical areas), there’s also a lot to learn about Excel. In your case, because you have a background in payroll accounting, it should make sense very quickly.
Are you familiar with Excel? I’ll attach the working example that I have for a feature film I just finished up in Toronto for a budget over $20Mil. Have a look at it, and if you can change the formulas to calculate pay hours for an IATSE International Low Budget feature I would much appreciate a copy. (I haven’t landed on one of those yet).
To get back to the workshop – come to the one on March 6th and I’ll answer your Q’s and work with you towards your goal. There will be a few times when we’re going over material you already know, but that’s cool – I’ll get you to help answer the other attendee’s Q’s :))