Job Costing: A Complete Guide for Construction and Field Services

It’s not uncommon for inaccurate job costing to result in financial pains. In fact, most companies’ finances have been impacted by inaccurate job costing. According to attendees of our webinar, Job Costing: How It Impacts Your Bottom Line, the majority - 54 percent - said it sometimes did and 33 percent said frequently. Only a small percentage - 13 percent - said rarely and not one said never. 

That’s because job costing can vary and it’s tough to stay on top of going rates for the work you do, if you don’t have accurate data. This, in turn, leads to under- or overbidding jobs, both of which cost you money either by going over budget or by losing bids. 

If you own a construction or field service company, you have to know what job costing is and how to get it right. 

What is Job Costing? 

Job costing involves having systems in place that help you determine what your actual costs are to ensure you’re making money. It is the process of monitoring your costs for each job or project and keeping track of those costs. 

Job Costing - when done properly - helps owners and managers to keep an ongoing record of costs associated with a job and also to identify problems early before they get out of control. 

What is included in Job Costing? 

There are direct and indirect costs associated with job costing. Experts explain that there are three types of construction costs that fall under one of two categories: Direct or indirect costs. 

Fixed Costs 

These costs include expenses for a specific point in time such as equipment or facility rental. 

Time-Related Costs 

Determined by the amount of time spent on a project or activity. 

Quantity-Proportional Costs 

Applies to expenses such as materials costs.

They say project overhead costs account for five to 15 percent of the total project cost and general overhead costs account for two to five percent. According to Carnegie Mellon University, costs associated with construction projects include: 

• Planning and feasibility studies 
• Architectural and engineering design 
• Construction, including materials, equipment and labor 
• Field supervision of construction 
• Construction financing 
• Insurance and taxes during construction 
• Owner’s general office overhead 
• Equipment and furnishings not included in construction 
• Inspection and testing 

Accurate job costing reports are critical to staying profitable so it is important to ensure you’re getting the right data and getting it regularly. It is important to track costs on each individual project as well, since costs can vary from job to job. 

When should Job Costing be done? 

Ideally, your job costing should be done throughout the process of a job or project. According to our poll of webinar attendees, the majority (33 percent) reported they completed their job costing at the end of a project. However, this can result in inaccurate information. 21 percent said they do their job costing monthly followed by 19 percent doing it daily, and 17 percent, weekly. 

As research has shown, our memories are not always as accurate as we like to believe and relying on memory to manage and track job costs is likely costing you money. While most of our attendees - 26 percent - reported they use technology to track job costs, a very close second was spreadsheets at 21 percent and there are still those who rely on paper (seven percent) or memory (three percent). 

Common Roadblocks in Job Costing 

While job costing is a necessity in construction and field service industries, it’s not always a pleasant task. It’s often either overlooked, forgotten, or done incorrectly. 

Aversion to Technology 

The number two reason on Forbes’ top 10 reasons people leave their jobs is because they don’t have the right tools or equipment to get the job done. 

Today’s construction companies need to embrace technology. Research from McKinsey & Company found this to be one of seven important areas that are reshaping the industry and boosting productivity by as much as 60 percent. 

Having the right tools to collect job costing data will make the job easier and far more accurate and technology is one of those tools that you need to get it done right. 

There are many options available - from Computer-Aided Design (CAD) and Building Information Monitoring (BIM) to 3D printing and drones - technology can feel overwhelming. In fact, as technology advances, older generations are more and more distanced from embracing it. Technophobia is a term used to describe an irrational fear of technology which leads to people avoiding it altogether. 

But adopting technology for your job costing does not have to be complicated or difficult. Start small and learn from others. Talk to peers or experts who are familiar with different technologies to determine which would be the best fit for you. 

Collecting Receipts from Workers 

When you have workers in the field, it is challenging to have them collect and turn in receipts for materials or other expenses. From damaged or illegible receipts to lost and forgotten receipts, many administrators are unable to accurately record how much is truly spent on a job. 

This is another issue that can be remedied with the use of technology. Notes, photos, attachments, or messages shared through a digital platform removes the need for collecting and sharing paperwork that, on a jobsite, might otherwise get lost. 

Being able to apply specific amounts to specific jobs, makes job costing more accurate and less painful. A system that provides your workers with the option to snap a photo of a receipt and attach it to a specific job will make their jobs easier, too. 

The Time it Takes 

Manually entering job costing information takes a lot of time. This can become overwhelming and when we’re overloaded at work, the effects can range from forgetfulness to cognitive fatigue, according to Harvard Business Review. 

It’s frustrating to be stuck with stacks of paperwork you need to enter manually which sometimes leads to procrastinating on the task. And even when you decide to undertake the task of manual entry, the boredom and frustration can lead to errors. 

Steps to Improve Job Costing 

Job costing doesn’t need to be inaccurate or difficult. There are steps you can take to improve the process and ensure you’re profitable.

Track Financials 

Start with getting your profit and loss statements up-to-date and accurate. You have to get everything to a point where you can look at your P&L and know for certain that the numbers are correct.

Get Accounting Software 

While you may be using spreadsheets to record data, it’s not as reliable or easy as accounting software. With an accounting software, you can look back on the purchases made and get started with job costing. Many software options will also integrate with others, making many of your processes easier, faster, and more accurate.

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Get Everyone on Board 

Your employees and supervisors should understand the importance of accurate job costing and how it affects the company. When you have multiple jobsites and/or crews, it makes collecting data even more challenging but make sure to educate them on what data they need to submit, how to submit it, and when to do it. Ensure they have the right tools and processes to do it correctly and on time.

Develop Processes for Subs and Vendors 

When projects involve hiring subcontractors, you need a process in place that allows them to communicate effectively and share important data. Similarly, vendors involved in a project should have a consistent process that helps simplify the way you track purchases and keep records.

Invest in Technology 

Technology is evolving rapidly and in the construction and field service industries, new technology is making jobs easier. From mobile time tracking to remote working for office personnel, technology saves companies time and money. 

Determine where you are losing time and money without technology and research solutions to help free up some of that time. Once you begin small and become familiar with the process, you’ll be more comfortable adopting another technology to further increase productivity and profits.

Any time you invest in something, do your due diligence to ensure you’re using a product with high standards and high customer satisfaction. This is particularly true for new technology which can be intimidating. Be sure whichever solutions you choose, the customer support is available and reliable to help you through any glitches.

Conclusion

Job Costing is a crucial part of running a successful and profitable business. It is sometimes mistakenly believed that this process is for large or mid-sized companies but even small businesses benefit from accurate job costing. If you don’t know how much you’re spending on your projects, you can’t accurately estimate future jobs or even be sure you’re making as much as you should be. 

Investing time and money into developing a solid job costing process will make your company more profitable and more competitive in the future.