What is 'overhead' in a research project budget?

Question

I am a new to project management, and I have started working on a European project proposal.

I can't figure out what "overhead" actually is. Can anyone explain to me, or provide me with sources from which I can draw, about the concept of "overhead" in a research project?

Answer 1

Overhead is any shared cost that is not directly identifiable with the project

Let us say that you have 5 researchers and 1 analyst assigned to the project full time. And you have bought some material for use in the project. In accounting, these are all known as direct costs for your project.

However, you are also using some office space, you have people in the Finance and Human Resources Department who are necessary for running the organization. Those costs are shared across many projects and so they are indirect costs. For accounting purposes, they are allocated to your project based on something like headcount ( $ per direct person) or payroll (% per direct payroll $)...etc. These are known as overheads. You can read more about it in the Investopedia Overhead page.

Answer 2

I will try myself at this answer. Basically, "overhead" can have two meanings:

1. Negatively connoted: When negatively connoted, overhead describes excess and UNNECCESARY effort or costs, that incure because the project is managed poorly and through this, effort will be redundant, mistakes will be repeated, information imbalance will affect quality of results etc. Usually, within my workplace, overhead refers to this.
2. Neutrally connoted: When neutrally connoted, it describes the effort or costs that dont lead directly to the creation of value/results but are still NECESSARY to support the value creating actions

A short description that supports this view can be found here: https://www.accountingtools.com/articles/what-is-overhead.html

There is definitely more extensive literature regarding this, but to give you a first impression i hope it helps :)