Learning The Importance Of Job Costing for Construction Contractors In 2021

by Kerry Evans Head of Marketing at ProjectPro

Construction projects often need contractors to deal with a lot of hassle while working on the job costing process. Such struggle with the project management process often leads to job costing-related errors while possessing direct damage to the project budget and cash flow.

For this reason, most construction firms, no matter big or large aim to improve their job costing process to ensure better business accuracy while taking command of their finances. However, there are still many construction firms and contractors who are not so informed about the significance of improved job costing as well as the idea of using construction accounting software for enhanced business efficiency.

Let us dig into more detail why job costing is so important for the construction business and how using the right technology solution could benefit contractors to have a progressive approach towards business.

Understanding The Process Of Job Costing

Usually, construction projects are often defined for their price based on two different processes. These include Process Cost and Job Cost. Process Costing involves the calculation of average cost for various project-related activities while considering past project data.

However, Job Costing is the process to calculate the cost of the entire project working on the different aspects like equipment, labor, material, and overhead costs for the entire project. Though the practice may appear very consuming, the Job Costing process is more precise when it comes to preventing any variables that might damage the project.

Also, Job costing allows project managers and contractors to understand the expenses while taking control of overhead costs. This is why more and more contractors have begun to work on the job costing process in 2021 to take command over opportunities and take down the financial downtime caused by the pandemic.

Let us quickly jump on the key factors that affect the job costing process when contractors need to drive higher net profits:

Quality job costing is about estimates that are made using the most precise data related to a construction project. It needs you to have a complete understanding of the project-related activities so that the data could be fed to the construction accounting software.

However, ensuring accurate estimates on construction projects requires an understanding of the cost areas that might hamper job costing goals. This might need contractors to keep a watch over labor, material, and all other data that can improve the accuracy of the job costing process.

Labor Resources

Quality construction needs quality staff which includes field teams, office teams, skilled and unskilled labor, supervisor, etc. And therefore, the process to calculate job costs must involve keeping a check on the payments made to all the site and office personnel associated with a project.

Besides this, contractors and project managers should also have a special provision for the subcontractor data to avoid any budget-related concerns at the later stages of the project. Also, project managers have to work on the data related to wages, health-related costs, and other information related to the project.

However, it is equally important to include the labor burden percentage that could affect the direct labor costs related to a project. These costs can include equipment maintenance charges, repairs, insurance, worker’s compensation, and other expenses that contractors may have to bear during the development phase of the project lifecycle.

Materials

The next thing which contractors have to work for accurate job costing is calculating the material costs related to a project. This process might need contractors to have an extra helping hand from the project managers and subcontractors since it can be of great help in preventing the loss of material costs.

When working on material data, contractors mustn't forget to work on material like wood, steel, bolts, screws, fasteners, and everything related to development. Also, this should include any costs related to equipment that is rented by the contractor including any prices related to waste material or delivery charges.

Overhead

Last but not least, when you have worked on all the other expenses, the last thing you need to do is calculate all the overhead costs. These overhead costs can be expenses that are made during office construction or the administration process.

Moreover, overhead costs even include any costs related to the depreciation of equipment, business expenses, and any costs that are not directly related to a project or activity. Since these costs are approximate values, these values flow during the entire project and need to be necessarily considered to avoid any loss of profits.

Creating Job Cost Summary

All in all, the concept of job costing is a process of controlling, managing, and tracking all the costs related to a construction project. Though most job-costing software allows you to track various aspects of the project and activities, it is important that software must be calibrated to record all the cost data.

Since the idea of job costing is crucial for project success, contractors need to consider selecting software that can help attain perfection on revenue while achieving project-related requirements. This is why contractors must aim for a solution that can serve the needs of staff while allowing them to generate profits.

Remember, job costing is the primary and most important step of the estimation process that can help with business development. And if you need to drive performance and opportunities, precision in job costing can be the ultimate tool you need to practice.

All the best!