“Running construction jobs without knowing your job costs is like driving blindfolded in a NASCAR race. You’ll surely crash and not like the outcome!”
This to-the-point analogy comes from construction business coach George Hedley in an article he recently wrote for Metal Construction News. According to Hedley, “many smaller contractors don’t keep accurate and timely updated accounting of their project budgets and job costs until it’s too late.”
I’ve talked with contractors as well who struggle to keep track of their costs, especially as their businesses grow and more money is flowing in and out. Many are trying to track their costs manually or with spreadsheets. In fact, according to the software buyer resource Software Advice, job costing is the number two reason why contractors are looking for construction software today.
The best way to track cost by project is to use an accounting software system that has built-in job cost capabilities. This will give you updated information daily to determine which projects you are making and losing money on based on your current billings and costs. It also allows you to dig into the details (by cost code) so you can identify cost overruns early and make course corrections to preserve your final profit.
But even if you already have an automated job cost tracking system in place, there are ways to fine tune your processes to assure you have the most reliable job costs:
- Are you tracking your committed costs? The last thing you need is to close out a job only to receive a late bill from a vendor or sub that you’d forgotten about. Suddenly the profit you thought you had erodes in front of you. A discipline of issuing and tracking purchase orders will give you the clearest picture of costs.
- Do you have an effective change order process in place? Understanding how your budget has changed and why it’s changed is critical to pinpointing your true job costs. Documenting and monitoring the status of change orders will give you that vantage point and make sure you get paid for all the work you do.
- Is time sheet information reported daily? Labor is the biggest risk to losing money on a construction job. Capturing and reporting work time on a daily, rather than a weekly, basis will improve time sheet accuracy and give you a more current view of labor costs.
- Are you taking proactive measures to monitor your costs? One contractor I know has set up an automatic alert that notifies him when jobs haven’t been billed or when the current profit is less than a specified percent.
- Do you supply actual costs to your estimators? An estimator’s job shouldn’t end once the bid is awarded. Tracking actual costs against the estimate and using that information to refine future bids will improve your company’s ability to win more profitable work.
Visibility into your job costs is central to prospering as a construction company. Just like the saying “you have to make money to spend it”—in construction “you have to know your job costs in order to control them.”
For more information about Sage job cost accounting software, visit our website at sagecre.com.