EVERY PROJECT PRODUCES COST DATA. FEW CAN READ IT.
Every project you run produces the cost data whether anybody uses it or not. Whether that data can answer a question about margin depends entirely on how the job costing is structured.
Job costing for subcontractors is the structure that turns the financial data every project produces into answers about margin. Structured correctly, it tells an owner which projects generate the best margins, where costs are exceeding estimates, and how field decisions affect profitability. Structured badly, it tells them nothing, and four problems account for most of that: inconsistent cost categories, delayed cost entry, incomplete project tracking, and inaccurate labor allocation. Any of those four makes project profitability difficult to evaluate, which is the one thing the system was built to do. Reliable job costing also does more than track past performance, because historical data is what refines the next estimate, shows project managers where the operational inefficiencies are, and lets an owner prioritize the most profitable types of work.
The four elements that hold a job costing system together are boring on purpose: standardized cost categories, consistent project tracking procedures, regular cost review cycles, and a working line between field operations and accounting. Not one of them is a software problem. They're decisions somebody has to make once and then enforce every month.
This post covers what breaks job costing and the four elements that hold it together. Read Construction Job Costing Explained for Contractors for the complete treatment, worked figures included.
WHY JOB COSTING DECIDES WHAT YOU KNOW.
Every project produces financial data, whether anybody ever looks at it or not. The data isn't the achievement. When job costing is structured correctly, that data helps owners understand three things they can't get at any other way:
Without reliable job costing, the answers to all three disappear.
THE COMMON JOB COSTING PROBLEMS.
Most subcontractors aren't missing a job costing system. They have one, and it has one or more of the same four problems inside it, which is why the numbers coming out of it never quite agree with what the field says happened:
These issues make project profitability difficult to evaluate, which is the only thing the system exists to do.
JOB COSTING IS ABOUT THE NEXT DECISION.
Reliable job costing does more than track past performance. It helps owners improve future decisions, and it does that in three specific places rather than in general:
Without accurate job costing, all three of those improvements become difficult.
BUILDING A JOB COSTING STRUCTURE THAT HOLDS UP.
Effective job costing systems typically include the same four elements, and none of the four are technical. Every one of them is a decision somebody has to make and then keep making:
When these elements are in place, job costing becomes one of the most powerful tools in construction finance.
THE SHORT LIST.
FREQUENTLY ASKED.
