Once a project is underway, it’s easy to focus on other tasks rather than the actual numbers. But 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.
Proper job cost reporting begins with a good estimate. You should start each job by arranging the estimate in the same cost categories that will be used to accumulate the actual job cost information.
Arranging the estimate summary in the same format in which the job cost information will be accumulated will enable a controller, president or project manager to effectively manage contract activities. He or she will be better able to compare the job cost information to the estimated costs.
The estimate’s specific form depends on how many job-costing levels were used in the estimate. For instance, larger jobs may require phase, activity or even unit costing, while totals for materials, labor and subcontracts are sufficient for smaller jobs. If you perform service-type work, your cost information needs may just include job totals by labor, materials and other direct costs.
What kinds of cost information do project managers 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 take several months for completion lend themselves to more detailed reporting. Those completed within a few days or weeks may not, however; time constraints make identifying problems early enough to take effective corrective action difficult. 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 include.
Once you make these determinations, ask project managers and others what type of reporting they require. If you’re not sure what kinds of questions will elicit the response you’re looking for, consider asking the following:
Both the project manager and controller should tell you their specific needs, and let you know why it’s necessary to capture the information in that manner. Doing so ensures that the right data will be available as needed.
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. This is why executing effective job cost reporting from the estimate through to completion is so important.
Establish the job cost elements that you must report with the job estimation. Contract reporting should observe the same cost breakdowns that were considered in determining the estimate. Your project manager needs to have this same framework in hand as work progresses. As the construction company owner, you need to have current job status information to make sound strategic decisions.
Remember, as experienced as you might be, gut feelings regarding how costs are running compared with how they were estimated are insufficient. You must obtain facts about the cost activities from jobs-in-process reports. Even if your “contractor’s intuition” turns out to be correct, it may come too late for you to head off a major problem.
Proper job cost reporting takes effort, persistence and, ideally, a good software system. The truth is that better numbers will lead to better results in the form of more profitable, less costly projects.
For more information on job cost reporting and other construction accounting services, please contact Smith and Howard at 404-874-6244 or use the contact us online.
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