Few concrete contractors know how to track job costs effectively. Very few. The reason few do is very simple: job costing is extremely difficult to get right. Would you like to learn how to do it right? Then read on.
In my many years of helping contractors with their job costing, I have discovered that over 80 percent of them are aiming for the wrong target. Most focus their attention on whether each job made money, and why not? Accounting systems are designed to do that very thing.
Ask your bookkeeper to pull up the charges for a job and he or she will pop out a little job costing report that details the payroll charges and supplier charges (concrete, rock, trucking, etc.) that have been assigned to the job.
What's wrong with that report? Number one, you're not seeing the full costs associated with the job. Number two, the costs of a specific job are nowhere near as important as knowing your crew's average performance across all jobs. As long as your job costing system tracks dollars and only dollars you will never collect the information you need to:
- Estimate accurately
- Consistently finish jobs on time
- Know whether your crews are working as fast as they should
Would you like a quick tip to help you boost the usefulness of your job costing system? Change your mind set from job costing to job tracking. You need to track all of the important information produced by the job. Most of that data is not financial, so you need to concentrate on building a system that tracks critical job information.
Few pieces of information have greater value than knowing the speed at which your crews work - how many cubic yards do your crews install per man-hour? Having that knowledge is like having money in the bank. And the only way you get that knowledge is by installing a job costing system that tracks non-financial numbers.
Let's dive in with "concrete" examples.
Concrete contractors should track the labor hours spent on critical tasks - the time it takes field workers to prep, form, pour and finish concrete. The second item you should track is the quantity of work accomplished: linear feet or square feet of forming, cubic yards or square feet of pouring and finishing, the number of footers installed, etc. Combining the two pieces of data lets you calculate the amount of work per man-hour.
Now that you understand the real goal of job costing - to track both financial and non-financial performance - your next hurdle is to create a job costing system that your personnel can actually use.
KISS - Keep it short and simple
Short means you track the absolute minimum information you need to estimate accurately and monitor field performance.
Simple means your employees can collect the data and fill out the paperwork. You need to install a job costing system that delivers the goods without being overbearing to your people. It is difficult but not impossible.
Another saying to keep in mind is "crawl before you walk and walk before you run." When you first venture into job costing, start with a fairly simple list of cost codes, a fairly simple time sheet and fairly simple data storage. Everyone will need to get comfortable and skilled at a simple system before you can start dialing up the complexity of your cost tracking.
Ask your field workers to break their time into too many cost codes and they will respond by recording it to whatever they think they should have been spending their time on. In other words, the information will be junk.
To minimize the burden on your field workers, keep the data collection reasonable. Go after the tasks that account for 80 percent of the crew's time. You will discover that roughly 20 percent of their tasks account for over 80 percent of their time. Don't sweat the 80 percent of tasks that only account for 20 percent of the time. The big hitters are the only tasks your crews should be coding their time to. All other time should be coded to "Other."