Job costing is within every company’s purview. Successful job costing can mean the difference between profitability and struggling to stay afloat. You may be overwhelmed with work, but perhaps you are wondering why you’re not any more profitable. The basic principle behind job costing helps you know as accurately as possible the cost of each individual job so you can make better estimates and business choices.
Job costing doesn’t have to be a major distraction or expense. Here’s how you can get started:
- Work with an estimator to implement a production reporting system to tell you how accurate your estimating has been.
- Analyze job costing reports for completed jobs and jobs in progress.
- Put in a billing system tied to actual and committed costs to keep cash flow stable.
- Account for jobs properly to discover whether they turned out to be as profitable as your job cost schedules led you to believe they would be.
- Get a more realistic breakdown of a project’s costs — even costs that may not have been expected or included in the original bid.
By collecting more accurate data, you can better estimate how much a project will cost on the front end and get a competitive advantage when submitting bids. The following overhead costs often are improperly allocated:
- Equipment and the costs of upkeep
- Computers and software
- Interest charges
- Such unforeseen events as plan changes increased material costs or additional time requirements.
- Salaries of those overseeing projects
When you establish a job-cost budget for each project based on figures provided by the estimator, your budget becomes a series of small estimates. For instance, you can predict how much concrete will be poured for a foundation and how many hours of labor will be required to complete that pour. Managers can compile actual costs and compare them with budgeted costs as the project is underway, not after it’s been completed. Job costing helps get a handle on which costs have fallen out of line.
Job costing enables businesses to compare jobs through time. You can track actual versus planned work hours for each cost to gain valuable insights into a project’s various aspects — for example, total square feet of pavement sealed or pounds of crack filler used. Job costing can help you achieve the following:
- Maintain credibility with your partners and bonding agents — successful forecasting of projects’ outcomes is key to obtaining loans or additional lines of credit.
- Manage progress and motivate staff to reduce costs and increase output on projects.
Job costing reveals:
- What your bread-and-butter jobs are.
- What margins are you sacrificing because you don’t know what your estimates should be?
- How to categorize costs according to tasks on the job. Thoughtful planning of goals early in the process will narrow your task list and help make clear exactly how your system should be structured.
- What you’ve accomplished — by comparing results with goals.
- What your current per-job profitability is, and by what amount would you like to improve it?
Without job costing, you have to rely on assumptions when evaluating your firm’s strengths and weaknesses. Instead, you need to track job profitability. By identifying where or why you’ve failed, you can codify success.
For more on job cost accounting, give us a call, and we’ll help you understand what’s right for your business.
We welcome the opportunity to put our construction accounting expertise to work for you. To learn more about how our firm can help advance your success, don’t hesitate to contact Kathy Corcoran at (302) 254-8240.
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