Custom jobs require ongoing supervision to achieve the best financial results. Whether you’re a general contractor constructing a strip mall, a manufacturer building made-to-order parts or an architect drawing up blueprints, once a project is underway it’s easy to focus on getting the job done, rather than on the resources that are being consumed.
That’s why job cost reporting — the process of coding and allocating project expenses to track financial efficiency and profitability — is a mission-critical activity. Here are a few best practices to keep in mind.
Smart estimates
Proper job cost reporting begins with solid cost estimates. Start each job by arranging the estimates in the same cost categories that will be used to accumulate the actual job cost information. This will enable you to effectively manage contract activities. And you’ll be better able to compare the actual job costs to estimated costs.
The proper format often depends on how many job-costing levels were used in the estimate. For instance, larger jobs may require phase, activity or even unit costing. For smaller jobs, totals for, say, materials, labor and subcontracts are sufficient. If you perform service-type work, your cost information needs may include just job totals by labor, materials and other direct costs.
Information needs
What kinds of cost information do you need during and after the job? These requirements depend on the time span of that job and the nature of the work.
Jobs that will be completed over several months lend themselves to more-detailed reporting. The size and scope of the particular job, as well as the software and people available to process and monitor job cost information, also affect the amount of detail you can include.
Progress reports
Cost reporting during the job is critical to controlling costs. Monitoring actual progress to date compared with planned progress to date determines where the job is at a particular time.
Keep in mind that you can’t take corrective action until you know something is deviating from the plan. That’s why executing continuous job cost reporting from the estimate to completion is so important. But jobs completed within a few days or weeks may not benefit from detailed cost reporting because time constraints make it difficult to identify problems early enough to take effective corrective action.
Also remember, as experienced as you might be, gut feelings regarding how costs are running compared with how they were estimated are usually insufficient. You must obtain facts about the cost activities from jobs-in-process reports. Even if your “intuition” turns out to be correct, it may come too late for you to head off a major problem.
Worth the effort
Proper job cost reporting takes persistence and, ideally, a good software system. The truth is that better numbers will lead to better results in the form of less costly, more profitable projects. Need help designing an effective job cost system? Our accounting professionals can help you select software and implement a costing system that’s right for you.
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