What is construction job costing
Construction job costing is a method of tracking expenses in a construction project to calculate the actual price of executing the project. It breaks down the overall project into more specific tasks and categories. Job costing is vital to any business’s profits, but it’s especially important to a construction business. The ability to efficiently and accurately determine your job costs on a project can very well be the difference between success and failure – on a project level and for the business as a whole.
Construction job costing or production reporting is different from estimating. Estimates are the detailed breakdown of expected cost – used for quotes and budgets – whereas job costing is tracking the actual cost of the project, in as close to real-time as possible.
In this article, we will be covering:
- Importance of construction job costing
- Job costing during projects (potential difficulties and component breakdown)
- Use job cost data to produce future estimates
- How Workyard Crew makes job costing easier
Importance of construction job costing
Efficient and precise job costing is essential to maximize the profit that you make from a construction project. Job costing can help you accurately breakdown your spendings to micro levels so that you are able to get an insight into your small day-to-day as well as your major one-time expenses. Job costing helps construction business owners get a clear picture of their projects, including labor and material spend.
Job costing during projects
Accurately gauging your progress is an integral part of growing your construction business, and construction job costing can make it much easier. However, the process of job costing in construction itself has its own challenges.
Difficulties of accurately tracking job costs during projects
When contractors calculate their spendings on a project, their labor figures are generally calculated based on their best estimate of the amount of work their workforce completed in an hour. For example, if their workers installed 100 feet of pipe in 10 hours, they can conclude that the workers worked at an approximate production rate of 10 feet per labor hour. This is a rather simple and straightforward breakdown. However, most projects in construction are much more complicated to job cost. You have to take into account different job-site activities, different labor crews, and different pay scales. All of these factors can affect your rate of production.
It’s vital that your construction job costing system is well planned and can track a variety of costs. You should educate your field team as well as your back-office staff, and make sure they understand the importance of the job costing system.
Gathering the data from the job-site is one of the major challenges of job costing. You should set up the time card format of your foremen, supervisors, and field workers to make sure it includes information that your job costing structure needs. Knowing the type of work each laborer is performing, the number of hours they have been working for, and the costs associated with them are essential to a thorough job costing system. Therefore, you may have your crew include the actual cost categories, or you may ask them to note down or describe the tasks on which they worked on each day.
A second challenge is tracking purchases done from the field. If project managers or other staff purchased materials, the purchase orders must display cost categories.
Most back-office staff that work in the construction industry agree that categorizing costs is really tricky. You must make sure that every single cost incurred must be correctly classified so that your job cost structure is usable at the end. Therefore, your office staff will need to meticulously go through paperwork and learn how costs should be categorized. Every single purchase order, invoice, inventory receipt, and timecard must include job cost detail.
Also, consider the information that you might have missed in your time cards or purchase orders and make sure your job cost system factors that in too. For example, if one of your crew members forgets to clock in one day, make sure you include the wages you paid him, even though their time cards didn’t display it.
Apart from this, as a construction business owner, you also have to be aware of unforeseen expenses you incurred during your project. During your project, you might find out that you were running behind schedule. To catch up, you will quickly need to determine the field activity that you are behind on, who amongst your crew members are underperforming, and so on. Looking at your job cost reports makes it easy to identify these issues.
For example, if your job cost report shows that plumber A installed 100 ft of pipeline in 10 hours, whereas plumber B could only install 50 ft in 10 hours, you will be able to point out the cause of the delay in your project.
Main components of a construction project
The process of construction job costing starts with breaking down the project. The three main components of a project’s costs are labor, material, and overhead expenses.
Construction business owners should have a clear understanding of the breakdown of their workers’ salaries and benefits. You should also keep track of all the invoices you received from your subcontractors. Identify the trades and the number of workers that worked on your project. Factor-in a breakdown of the costs associated with each of them when you evaluate your entire project.
You can start this part of construction job costing by making a list of all the material you purchased for the project, and note down their costs. You can classify your material costs into the following categories, to make your job costing easier:
- Primary material: Wood, steel, concrete, etc.
- Supplemental material: Nails, screws, fasteners, etc.
- Equipment leasing
- Material delivery
Don’t forget to consider other overhead expenses such as administrative fees, construction software services, taxes, and rent. While they are not directly job-related, you cannot really understand job profitability without factoring them in.
Change orders can often create huge disruptions in the budget that you set for your project. Make sure you factor in any additional labor and materials costs after a change is made. Closely monitoring your change orders can help you understand the impact that each change had on your project’s budget.
Using job cost data to produce future estimates
Successful construction business owners have a thorough understanding of the profits they made executing each of their projects. They are aware of exactly how their job sites progressed, as well as how their businesses as a whole moved forward. If you follow the right process when you do your construction job costing, you can get a detailed look into the daily activities and costs of your team.
With this level of data, when you bid on new projects, you will be able to pick the new projects more confidently and estimate the costs for them more accurately. For example, if your gains from a residential project are significantly higher than those from a commercial project, you can choose to narrow down your focus on residential projects. Or if a particular task such as cabinet installation is taking fewer labor hours than you had originally anticipated, you can adjust the labor hours accordingly in your future bids.
How Workyard Crew makes job costing easier
The statuses of construction projects constantly change, which poses challenges to stakeholders. They often have to spend hours on manual budgeting and paper timesheets. However, Workyard Crew is designed to solve the problems one generally faces performing construction job costing, particularly as it applies to labor. This state of the art application solves the problems by helping you accurately monitor labor costs of current projects and creating automatic job cost allocation reports. Moreover, Workyard Crew’s GPS tracking technology enables automatic labor code costing – making it easy to allocate labor costs to each of your work sites. You can create a geo-fence around your worksites and your workers will automatically be allocated to that site when they enter it.
Along with monitoring the costs associated with current projects, Workyard Crew’s features also help you drill deeper into labor costs, making future estimates more accurate. Workyard Crew is loaded with features for ensuring accuracy and accountability of information :
One-click supervisor approvals: Using the app, your supervisors can quickly review and approve time cards from their desk or mobile device with a simple click.
Reduced Admin Overhead: The Workyard Crew app reduces administrative burden by enabling workers to easily edit their time cards, even after they are submitted. When workers do edit their time cards, they’re required to submit a short reason for the edit, which reduces confusion at the time of approval.
Keeping Track of Edits, Submissions, and Approvals: Each time card displays a log of all edits made and who made them, ensuring accountability.
If you would like more information about Workyard Crew construction job costing software, please enter your contact details here, and one of our account executives will be in touch with you shortly.