• Posted by skuhn

Why is Job Costing So Important for Contractors?

Job costing is one of the biggest concerns for contractors. It can be the difference between making money on a job and losing money. When done accurately it’s a great benefit to contractors. It gives you the ability to pinpoint exactly where your money is at all times. 

What is job costing?

Construction projects are generally priced one of two different ways: either process cost or job cost.

Process costing means that you assign an average cost based on what the job requires and your past experience. Job costing means that you calculate the detailed costs by breaking down specific labor and materials cost and adding them to the job as well as overhead costs. 

While job costing involves a lot more work it also gives your company a lot more certainty. It’s certainly more useful in construction where there are a lot of variables from one job to the next. Job costing lets you know exactly where you are spending money and where you are making money. 

Let’s break it down

Job costing gives you as accurate of an estimate as possible, but it is only as good as the information that you put into it. You will need a clear understanding of the job, what is involved and needed in order to get the most accurate information to put into the system. 

Your project will have three main cost areas: labor, material & overhead. Let’s look at each of these a bit more. 

1. Labor

Everything starts with your employees. Calculate how many hours they will be spending on the job and how much you will be paying them. Also think about where you will need subcontractors and get estimates from them. Waiting on them later will just cost you valuable time and money. It’s always a good idea to do your own calculations of their cost and hourly rate. Make sure you build in some contingency as well, as you never know what might come up. 

A good Job Costing system will also include labor burden, which is the total indirect contract costs. It’s calculated as a percentage of the company’s direct labor. It includes things like worker’s compensation, insurance, equipment repairs and maintenance, depreciation and payroll taxes. All costs associated with paying workers should be included.

2. Material

The next thing to consider is material costs. Make sure to consider everything from the steel and wood all the way down to the screws and fasteners. You also want to include your equipment in here if it is rented. Remember to include the upcharge in order to cover things like delivery and waste. 

3. Overhead

Overhead costs include all business expenses like the office and administration. It also accounts for equipment depreciation and any other business expenses not directly related to the job. These costs are approximates, rather than calculated exactly, and spread across all jobs for the year. 

Job Cost summary

Quite simply, job costing is a process of managing, controlling, tracking and categorizing every cost that is incurred by each job. In most job-cost software systems the costs are also associated with particular parts of the job or type of work that’s completed. The primary goal of job costing is to keep track of all of your costs and your money, to know where every penny is going on every job. The ability to do this is the key to any good contracting business. 

Finding and implementing the right Job Costing software system

While contractors know that job costing software is a great idea, they can have a difficult time finding the right program and implementing it affectively. It’s important to make sure that you find a solution that works for your specific business. 

When you are looking for new software, make sure that you include your staff, who will be using the program, in your decision. Make sure you ask them plenty of questions about what they like about the current program that you use, what they think is missing and what they would like to have as well. Keep these things in mind when going through demos of different programs. 

Job costing software can make or break your business. It’s important that you find a solution that works for your business. STRUCTURE Blue’s Job Cost and Billing module lets you view and analyze all significant details of each job, summarize costs and compare costs to the budget. You can develop your own budget in dollars, hours, units, by cost code or cost type. You can also import a budget from one of the many third-party estimating programs that seamlessly integrate with STRUCTURE Blue. 

Of course, you’re not the only party interested in Job Cost - STRUCTURE Blue’s flexible reporting options help you analyze and report over and under billing projections, for your bonding company and bank.

Learn more about what STRUCTURE Blue can do for you here.