10 Tips To Improve the Accuracy of Job Costing In Construction
One of the most complex tasks in the residential construction business is job costing, or allocating expenses to individual projects. It requires the construction team and accounting staff to work together to record, define and track every cost to determine the real price of a project for your company and its profitability, once all the bills are paid.
Job costing is critical to a company’s success. Why? Because it enables you to:
- Determine which jobs, tasks or crews are making — or losing — money;
- Focus your bidding on the type of jobs that are profitable for you;
- Adjust your bids to ensure and improve profitability on future jobs; and
- Catch jobs in progress that may be headed for a loss and make needed adjustments to ensure they stay within budget.
To ensure that your job costing supports good business decisions, you need to have a system in place that reduces errors and is manageable for your employees in the field and in-office to use regularly.
Tips To Improve Accuracy
1. Keep Separate Job Costs Separate
If you’re running multiple projects at once — like most contractors — you need to make sure job costs are kept separate for each project. It may be tempting, and seem initially easier, to lump together all your costs for equipment rental, switches, piping, drywall, etc. and then guesstimate how much of the total each project consumes, but this process won’t give you the accuracy you need to optimize your benefits.
2.Review Cost Codes
The main cost centers for estimates and job costing are labor, equipment, materials and overhead. None of these can be ignored. However, different companies use cost codes in different ways. Some use fewer codes to make tracking easier. Some use more codes to make estimates and job reports more detailed. You’ll need to determine which system works more effectively for your new build process. Look at the codes you’re using now and see if these are giving you the information you need to understand not only what a job costs and how profitable it is, but why.
3.Understand Materials and Equipment Pricing
Material and equipment prices change over time. Factors in these changes can include:
- Fluctuations in demand based on economics
- Seasonal demand
- Delivery challenges due to location
- Delivery challenges due to time constraints
Looking at past job costs may help you determine which factors will be in play during a future project. This knowledge can help you work with your best suppliers in advance to resolve potentially costly issues.
4.Pay Extra Attention To Labor
Labor is the most expensive project cost, so it deserves extra attention. Don’t forget that hourly wages aren’t the entire story. Total labor costs include taxes, benefits, union contributions, trucks, cell phones, etc. When job costing for labor, begin with the average total daily cost of a crew. Then, while productivity will vary somewhat from job to job, you can get a good idea of how long your crew will need to complete a task by looking at their past jobs.
5.Don’t Forget Overhead and Indirect Costs
While these costs are not directly job-related, you cannot understand your overall profitability or how it is impacted by each job without including them in your job cost calculations. Common indirect costs include:
- Office space and job site office expenses
- Administrative and operations staff salaries
- Legal services
- Shipping and storage
6.Include Change Orders
Change orders are a fact of life in construction. You can’t wish them away, and you shouldn’t ignore them in your job cost reports. They can often be the difference between making and losing money on a project. Detailing them will help you understand how they are affecting your costs and how to best handle them in the future.
7.Review Projects & Reports Regularly
It’s better to know that a project is heading over budget before it’s completed. Regularly reviewing job costing reports can help you catch overruns in progress and make decisions on upcoming expenses that may keep your project profitable. Some of the reports that you should be reviewing during jobs are your to-date cost-code summaries, budget-vs-actual analyses and your cost-to-complete estimates.
If you are tracking your job costs as they are incurred and paid, it will help you bill in a way that can protect your cash flow. Percent-complete or progress billing (sending invoices based on work completed to date) is common in construction. Job cost reports can provide an accurate picture of your progress, helping you determine when to send bills and for how much. They also enable you to see and make adjustments when expenses on a particular project are outpacing payments by an uncomfortably large margin.
9.Consider Implementing A Mobile Time Tracking Solution
Many of your job costs are incurred on site. You need accurate information on all of these, from labor hours and costs to how many sheets of drywall or feet of pipe were actually used. It is convenient to have a mobile app that your crews can use to record these expenses right from the job site and transmit them directly to your accounting staff.
10.Utilize A Trusted Software Built for the Residential Construction Industry
Traditional job costing methods use spreadsheets, but these can be time-consuming to use and leave a great deal of room for error. Mistakes in job costing can lead to errors in estimating and bidding which, in turn, can negatively affect your profitability. Using computer software can make job costing more accurate. The best solution is not generic accounting software, but a system that is specifically designed for residential construction companies like your own.
Some of the features that can be most beneficial are:
- Flexibility to adapt to the cost codes and classifications, expense breakdown (by task, home, community, builder, etc.) and processing system that works best for your individual company’s operating style
- Full integration of job costing, accounting, information input, communications, etc. for less duplication of effort and fewer opportunities for error
- A variety of report templates that are specifically suited to the industry and your business needs
- Mobile capabilities for on-site input of information and real-time communication among project team members
Improve Job Costing Accuracy With Hyphen’s BRIX Software & informXL Analyzer
Hyphen’s BRIX is more than a residential construction ERP software with accounting. It’s a fully integrated enterprise resource platform that allows you to access the most efficient solutions available for any size home builder. Already used in over 11,000 homes each year, BRIX lets you control purchasing, production, accounting, costs and reporting all in one streamlined cloud-based construction program.
Simplifying and strengthening home builder reporting and data analysis, informXL’s Analyzer is a real-time Microsoft® Excel-based reporting solution that pairs with BRIX. Analyzer lets homebuilders transform data collected in BRIX into actionable reports that support informed business decision-making in merely seconds.
InformXL’s real-time Microsoft® Excel-based reporting suite can help you analyze your BRIX job cost and Purchase Order data, allowing you to:
- Get detailed breakdowns of all job costs by division, region, project, job, cost code and vendor
- Create visual charts and graphs of job cost and variance spend
- Analyze and compare cost per square foot by project, plan, vendor and cost code
- Easily customize reports by user and department
Interested in learning more about informXL’s Job Cost Analyzer Reporting? View the recorded webinar or schedule a demo to talk to a Hyphen Solutions expert about how adopting BRIX as your home builder ERP software will transform the way your business manages sales, accounting, job costs, purchasing, payroll and more.