In the construction industry, job-costing systems are essential for a company to maximize success. But having a job-costing system that produces accurate information requires diligence in recording and coding time, materials, subcontractor and other costs to the correct job, and for the correct amount. In the end, that effort will pay off.
Track financial performance of your people
Knowing how much you make on each job, for each individual overseeing and running jobs, can help you identify who high performers are in your organization. It can help identify who performs a certain type of work better, or who may be better suited for handling smaller or larger projects.
Track performance of jobs
Knowing how each job performs can help you identify any types of work on which you may make more gross profit and can help guide the company’s future decisions. With a properly updated job-costing system, you can know how a job is performing on a timely basis, and people overseeing a project can identify projects that may be over budget earlier on.
Stakeholders expect firms to have job-costing systems. Bankers want to see that you can track your profitability by job because it means that you have a handle on the company’s operations and have timely, accurate information. Also, if your sureties are involved, they also expect a job-costing system to be in place because they want to know the performance on a job-by-job basis. Having such a system and properly using it also boosts credibility with bankers and sureties.
But a job-costing system is only as good as the information entered into the system. A company should update the job costing system at least monthly for the estimated total costs and the contract amount, if there are change orders. In addition, a job-costing system goes hand-in-hand with an estimating system, as the job costing system should closely match the inputs into the estimating system.
The benefits highlighted above cannot be achieved unless a budget is established, and you utilize the systems effectively.