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Job Costing for Construction Firms: How to Ensure Profitability

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More than 2.5 million construction firms in the United States, some big, some small, some successful, are struggling to stay above water, according to the U.S. Census Bureau. One of the reasons many firms encounter problems has nothing to do with construction; it has to do with finances. Seventy-five percent of construction companies said that job costing was a major concern in a recent survey by the Construction Research Corporation.

That’s not surprising. The fact that you understand the construction business doesn’t mean you necessarily have the training to manage your finances efficiently. The bigger your company gets, the more complicated those issues become. Job costing is among the most challenging issues. Job costing tracks and accumulates every cost (including those for labor, materials and any subcontracts), and helps you determine why costs are incurred and which aspects of the business are most profitable. 

Manage Job Costing by Breaking the Process Down

Like many large and complex processes, job costing can be more effectively managed and costly mistakes avoided if you break it into smaller pieces. Devise a smart plan, then apply that plan to smaller jobs and finally measure the results to see what’s working and make adjustments as needed.

Create Your Plan

Before you make changes, you need to create an accurate picture of your current processes and procedures. The first step is to ask your key people several questions. What kinds of reports do your project managers generate and what new reports would they find more helpful? What kinds of software do your accountants use? How do they rate that software? Are your workers tracking and organizing all costs? Most importantly, as a CEO or CFO, do you receive the information you need to make sound business decisions? 

Work closely with your staff to determine what deficiencies exist in your current practices. By carefully analyzing these, you can create a plan that improves the process, whether that means new or revised reports, alternative software or outsourcing job costing.

Implement Your Plan

Job costing is a complicated matter, and even when you’re very thorough, your first attempt at a plan is likely to have a few bugs. For this reason, you don’t want to apply your new job costing process to all of your construction projects immediately. Instead, start small so that any mistakes will be limited to a single job or to one component of a job. In most cases, it’s best to apply your plan to new jobs, rather than ones in progress, and to smaller rather than larger, more complex jobs. 

Test Your Plan

Identify and address any aspects of your plan that need adjustments based on what works and what doesn’t in the implementation phase. Look for any costs that you missed, such as overhead costs, and any that are inaccurate. Testing allows you to fine tune your plan, enabling you to extend it to more (and more complex) jobs and eventually apply it to every construction project.

Conclusion

Managing and growing your construction firm involves many challenges, from marketing to customer service to quality assurance, but your business can be at risk if you don't efficiently manage your accounting services and finances. Make sure you have an effective job-costing plan in place, whether that means creating such a plan in-house or outsourcing to an experienced service provider.

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