What is Job Costing in Construction
What is Job costing?
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, construction companies can compare what was budgeted for each project during the estimating process to what the actual costs are as the project goes on. Some companies do this important job by hand. A report by Dodge Data & Analytics and Viewpoint found that 14% of contractors still use paper forms and 28% still use spreadsheets to keep track of job costs. Reporting by hand isn’t always the best way.
This is why. Let’s say you bought 200 wooden doors from a company in China. Everyone is ready to go when your order comes in on time. You think that the job order and cost are on the right track. But what would happen if the doors cost a lot more than you had planned? Or they didn’t arrive on time and you had to buy something from your own country? In the end, the price increase would make the job cost more, which would cut into your gross profit. And this kind of small surprise can happen at any time during the project. If you do job costing by hand, you might not realize how much your profit margin has been cut until a few weeks have passed. By then, you might have missed your chance to save money.
If you use software to manage a project, you can compare the actual costs to the estimated costs in real time. Keeping an eye on the budget more closely and on time can make the difference between making a nice profit and stumbling along and never really making more money, even if you hire more people. Businesses can stay within safe margins and keep a healthy cash flow if they know where every dollar budget for a project will be spent. This goal can be reached by construction businesses that do a good job of costing each job.
When job costing is done right, it gives a construction company a better idea of how the job is going and makes it more likely that the project will stay within its budget. This is done by keeping track of labor hours and costs, manufacturing overhead costs, material costs, and other things. This helps the construction team become more efficient.
What’s wrong with Job costing
In a recent survey by Construction Research Corporation, 75% of contractors said that figuring out how much a job would cost was one of their biggest worries. Part of this worry is based on the fact that job costing data is only as good as the information it is based on. If it’s hard for you to measure your data and make sure it’s correct, it will also be hard for you to manage that data in a useful way.
Job costing is a way to figure out how much a project will cost by adding up the costs of indirect labor, direct labor, materials, and overhead. Since overhead costs are not directly tied to a specific project, it can be hard to figure out how much they are. Things like office rent, administrative costs, equipment depreciation, phone bills, travel, and marketing fall into this category. Even though it may be tempting to leave out these costs, you can’t get a full picture of how profitable a job is without them. The overhead costs of running a construction business are often added to each project as a flat rate, such as 10%.
As you’ve seen, many contractors still use paper forms to collect data in the field and then enter that data into spreadsheets. This way of figuring out how much a job will cost has a lot of problems. For one thing, getting information from work teams and re-entering it later doubles the amount of work it takes to make the report. And what project manager has time to do the same thing more than once? Also, every time an entry is duplicated, the chance of a data error goes up. Also, the results aren’t shown in real time. By the time the daily construction reports get to the right people, like managers, owners, and other decision-makers, work on the site has probably moved on to a new phase. The less often reports are run, the more of a problem this is. Reports that aren’t sent in real time make it harder to make changes right away. And that could mean the difference between making money on the job or losing it. Also, methods that are done by hand are not clear or organized.
By automating the process, construction project management software makes it much faster and easier to get things done. Just put the numbers in, and it will do the math for you.
Advantages of seeing things as they happen
Many contractors say that seeing how the project is going in real time is the main benefit of using project management software. There are many factors that can affect a project, including:
direct material costs that are hard to predict,
mistakes made by people.
It’s no wonder that the profit margins for many construction jobs are so unstable.
It can be very expensive to use manual methods that take days or weeks to reach project owners and other decision-makers. By the time they find out about any possible problems, the project may be too far along for simple fixes, leading to more expensive work.
The internet and cloud-based technology are used by construction project management software to provide real-time data by making use of their speed and ability to help people work together. It’s almost as good as being on the job.
This is important for business leaders like the vice president of operations, the chief financial officer, and the chief operations officer. Understanding costs in real time can help them make better, faster decisions that increase the company’s profits. For example, CFOs can get more useful information about cash flow if they have up-to-date information about costs. Since CFOs see the same information as project managers, they can better understand where the company can save money and where it might be spending too much. They can also see if the work done by the company is reflected in the bills.
Software like PlanUpPro for managing construction projects is especially helpful for project managers who need to look at all parts of the project every day. When all job data is recorded and put in order, project managers and foremen have reports they can really use. Automated project management software not only makes project managers’ jobs easier, but it can also help them see how their teams and individual workers are doing or not doing. If a certain job is falling behind, more people can be temporarily moved to it to keep it on track. And just as project managers can tell how well a worker is doing overall and what jobs he or she does well or not so well, upper management can use construction project management software to see how well project managers are doing their jobs.
Software-generated job costing is made up of many different parts. Its reports are useful for a wide range of people, including those on the job site, top executives, accounting staff, and more. If you want job cost reports in real time, you might want to switch to an automated project management software like PlanUpPro.