Film Production Hot Costs – Webinars?

A young man, newly starting as a Key Production Accountant, asked me about Hot Costs. Below is the response that I wrote to him. It occurred to me that a lot of people have asked for a template of the Hot Costs that I use and perhaps there is a demand for a webinar on Hot Costs. Have a look at the info below and please give me your comments.

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Hi, Erik. Helene passed along to me your emailed questions. First of all, I’d like to congratulate you on your new key accountant position.

1. On the Hot Cost template that I sent you the 0.74 is a conversion rate of CN$ to US$. For your purposes make it a 1.

2. TA ia “Turnaround”, a common term for “Rest Violations”.

On your question about doing a webinar on Hot Costs – I like the suggestion.

Background of Hot Costs:

The basic concept behind any hot cost is to estimate the cost of the actual day with the budgeted day. Labor is the biggest area looked at. In any labor calculation (cast or crew) you’re looking at:

– Overtime

– Meal Penalties

– and, Rest Violations (Turnaround).

 Over the years I’ve worked out this particular format for myself, but it doesn’t have to be as elaborate. For instance, when Hot Costs first started to be used, in the early 90’s, myself and the UPM would sit together and rough it out with a few pencil scratch marks on the back of the daily production report (i.e. the average time for all grips and elec’s was 14 pay hours x 11 of them at an average rate of pay, then compare that result with the budgeted number of pay hours x the same average rate of pay. We’d do that for each department, as well as the drivers, add it up and say – there’s your number).

 However, as the majors grew more and more cost conscious we were forced to become more and more detailed oriented. Also, some UPM’s and studios will challenge your Hot Cost results, so it behooves the production accountant to have a tidy schedule ready to answer their questions.

Film Payroll and Hot Costs:

I’ve never done a workshop on Hot Costs, only because you first need to know Film Payroll, then you need to know “If” statements in Excel. So, the course on “how to do Hot Costs” reduces to either, or both, a film payroll workshop or Excel programming workshop.

 Regardless of your geographic location, I teach all the fundamentals of film payroll (as well as film accounting, managing film budgets, etc). The unions covered are:

SAG, DGA, IATSE Low National Budget and IATSE Area Standards rules. (i.e. not the West Coast IATSE Basic Agreement, nor the New York locals). NOTE: The IATSE Basic Agreement as applied on the West Coast, and the New York union rules, are very similar, but there is variation among the Basic Agreement Locals which can be looked up once you understand the basics of film payroll.

Let’s see if others are interested:

Having a webinar on Hot Costs is a good idea, though. Hopefully, those who attend will already have a handshake idea of film payroll, as well as a good grasp of Excel.

 I’ll propose it on my blog and see what sort of response I get.

 Thx for your kind words about the usefulness of the recorded videos of the on-line webinars. I’m pleased that they helped you.

Best / John

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“Hot Costs” – a big part of a Film Production Auditor’s Job

As of Sept 2, 2013 I finished an online Hot Cost Course.

For more info see this short 2 minute YouTube Video:

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Original Article:

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:

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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),

-Extras, Stand-In’s

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 :))

Best,
John

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