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62 SMT Magazine • February 2017 Adding the total cost of this top level chart alone results in $1.285 million in salaries (this does not include the cost of each employees benefits, at an average of 40% of salaries, or $514,000) and incentives. This adds up to a general & administrative cost of about $1.8 mil- lion, plus indirect cost that MUST be absorbed by the direct labor rate when we quote a job— say, to build electronic home alarm security sys- tems for an original product developer (OPD). Add to this the indirect labor expended by the operations directorate (Figure 4), about $2 million more. This causes us to load the average direct labor rate (the average salary with bene- fits) of machine operators, hand assemblers, test personnel, hand soldering, etc., typically hour- ly employees used for the direct assembly of the product with about $3.8 million. But that's just part of the indirect cost iceberg—there are five more directorates! All the department managers and some en- tire departments in the other five directorates are indirect labor sources as well, and must be absorbed by selling direct labor. This brief dis- cussion makes it clear why the volume of direct labor that we sell is critical. As striking as these indirect costs are, the or- ganization's departments also create natural si- los. This results in an employee's sense of work- ing for operations or engineering or quality as- surance first, not C&D! Unless we have very strong leadership and managers who put the welfare of the company ahead of their own departments, decisions are often made in the best interest of a department, not C&D. And let the warfare begin as the hunt for the root cause of a bad company result is fought on an organizational battlefield that pits depart- ment against department, using weapons of A NEW ORGANIZATIONAL MODEL USING LOGIC, PART 3 Figure 4: C & D quality assurance organizational chart.