Job costing in construction for labor costs – with examples
There are many tools with which you can calculate your material costs, but only a few help with calculating your labor costs.
I believe that job costing is as important as getting clients. If you don’t have clients, you don’t have a business. If you are bad at job costing and budgeting, you might not get far with your business. Like, how do you know how much you have spent or how much cash is left from the project? Can you lower your price with the next projects, or maybe you should increase it? Which projects are performing and which are not?
What is job costing in construction?
Job costing is a great tool for project management because it breaks down project spending into small pieces. This lets businesses see both the small, daily costs and the big, one-time costs, so they can get a better handle on their cash flow. By using a good job costing method, you can compare what was budgeted for each project during the estimating process to what the actual costs are as the project goes on.
What are the components of a job cost for a construction project?
Usually, you will have three main components:
- Labor costs
- Material costs
- Overhead expenses
Some companies like to add other components, but the more you go into details, the more time-consuming it might be to track everything. Besides, you then must decide what codes you will use for each component and then for each subcomponent. So the more you go into details, the more risk you have of making mistakes.
What should be our result?
The idea of this whole article is that we will make a sample project where, in the end, you can sit at your laptop and, with a few clicks, track across your projects. Where you can see how much money you have spent and how much money you will still have to pay for your site works.
Determine your scope
Let’s imagine we have a project where we have to perform concrete work. This scope will include the following tasks:
- Building and setting up the forms
- Install reinforcement
- Molding expansion joints and edges
- Pouring concrete
- Polishing surface
Just for example, we will assume we have only 5 tasks and other tasks like filling joints lets leave aside. The quantity will be 1000 sq. m.
Use of construction software
Once you have determined your scope and tasks, you then pass this information into PlanUpPro along with your planned productivity. Planned productivity is your usual productivity, or how much one of your guys can execute in 1 hour. If you don’t know what PlanUpPro is, I suggest you read this article.
For example, for building/setting forms we will set planned productivity as 2 sq. m per hour and we fill also remaining positions. With this step, we are letting the software know what our planned budget is; it calculates your initial budget by itself.
Who will perform our work?
Now when we are done with our scope we have to set our team. Let’s assume for this project we will need 6 guys, and each of them has a different hourly rate. For example, John Smith, who is also our team leader, could make $30 an hour. You have to bear in mind that $30 is how much John costs the company, including taxes. And you also don’t need to be super precise; PlanUpPro is not accounting software; it is construction software.
Now let’s move to the site performance
We have filled out all the data we need, and we are ready to start our work on-site, track our budget, and fill out daily reports. All we need to know is who was working on site, for how many hours, and how much was done. The quantity of how much was done can also be equally divided by how many guys were working on site it doesn’t matter because app still will be able to calculate and give us input.
In the screenshot below, I have filled out the data for 2 days.
Monitor your budget
Finally, work has started, and we have our first data. Here you can see what was our planned budget and what our expected budget would be.
As you can see, our project will go over budget by around 8000$. Good, now that we have data we can start to rethink our strategy. You can review whether you need to change some processes, and so on.
You can also detect underperformance. Maybe these guys are doing a harder job than others or maybe they are good at something else. The most important thing is that you have data on which you can rely you give data and you receive an output of how much time or costs will take your current strategy.
Why can you trust these data?
The model is trained on hundreds of different sites. What it does is take your data, remodel different scenarios, find the best possible one, and give you the output. And yes, if you have some problems on site, such as missing deliveries, a lack of workers, or anything else, Don’t worry, the algorithm will pick this up. It has been trained in hundreds of different case scenarios, and he knows that anything can happen on-site.
Job costing for construction projects, if done right, can significantly improve contractors’ performance and ability to compete. As you saw in the example above, with the right tools, it is easy to track the progress, see the potential costs, and change things well before you know that something might go off track.
With just a few clicks, you can see and monitor the status of costs for other projects. And the best part is that the data is reliable and can be used for future projects.