Job costing blueprint

October 17, 2016 -  By

Good tracking is essential for assessing a project’s success. It also gives employees a blueprint to work from.

Job costing helps contractors identify, quantify and measure all the costs that are unique or specific to a project. There are three main reasons job costing is so important, says Mike Lysecki, former director of operations for Ontario-based landscape company TBG Environmental, now chief technology officer for software company LMN.

“One, it gives crews clear and measurable goals—if you don’t keep score, there will never be any urgency to get work completed; two, so you can evaluate how close your estimated cost is to your actual; and three, so you have a living history you can use to train new estimators and fix consistent mistakes.”

What to track

Hours
How to track it: Foremen should be aware of the estimated hours and track their daily hours on every job. Lysecki recommends using an app to reduce errors and overhead required to process paperwork, but you can use paper reports. Track every hour it takes to
complete a project, from mobilization and site prep to the post-job cleanup. Keep it simple. Tracking minor tasks, like installing base or edging, is unrealistic for a foreman who’s trying to get a job done right, Lysecki says. Instead, start by tracking major tasks, such as “120 hours to install a driveway.” You’ll have less data, but it will be more accurate and you’ll end up with data you can trust to improve future estimates.

Materials
How to track it: For the best accuracy, track material costs in QuickBooks or your accounting system. As you enter vendor invoices, allocate them to the jobs where they were used. For example, a patio might need $3,000 worth of stone, $600 worth of gravel, $40 worth of anchoring spikes, etc. If your total material expense consistently exceeds your estimated material expense, pay attention to small materials that aren’t getting recovered when estimating. Most estimators are good with the major materials, but the small things that are missed often add up to major shortfalls in profit, Lysecki says.

Equipment
How to track it: You can cost equipment like a fixed expense, similar to overhead, or you can track it every day, like a job expense. Daily tracking might be more accurate, but it’s also very time consuming. If you do choose to job cost equipment each day, track the equipment used each day and apply those costs to the job. To calculate the hourly cost of equipment, use a spreadsheet or LMN’s equipment cost calculator, GoLMN.com/equipcalc. This tool takes into account a piece of equipment’s acquisition costs and annual operating costs to generate a cost per billable hour.

Subs and Overhead
How to track it: Subs, rentals and extras should be tracked in accounting using vendor invoices, like materials. Once you’ve tallied the direct costs of doing the job, tack an overhead cost onto your estimate. Base the overhead recovered on the overhead recovery system you’re using—for many it’s an overhead per man-hour figure or the multiple overhead recovery system, Lysecki says.


PRO TIP: Start Simply

Don’t overcomplicate things—especially in the beginning. In a perfect world, you would job cost every specific aspect of every project, but tracking too much information makes results inaccurate and analysis daunting, says LMN Chief Technology Officer Mike Lysecki. Start simple—if it’s too complicated for the foremen, you can’t trust the numbers. Save the details until their experience develops. Otherwise, you’ll end up having a myriad of information that nobody trusts, and that’s when most companies give up, he says.

Lysecki’s job costing mistakes to avoid:

  • Job costing in your head.
  • Working without accurate estimates.
  • Getting too complicated (see above).
  • Not giving crews feedback and progress reports.
  • Having payroll and job costing as separate systems. Make payroll and job costing the same system so that every payroll hour is accounted for.
This article is tagged with , , and posted in 1016, Design/Build+Installation

About the Author:

Dillon Stewart graduated from Ohio University’s E.W. Scripps School of Journalism, earning a Bachelor of Science in Online Journalism with specializations in business and political science. Stewart is a former associate editor of LM.

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