Jim Huston Certified Professional Landscape Estimator, J.R. Huston Enterprises, Inc.

Job Costing: Why it’s Critical and What to Look For

“I just don’t know if I’m making money on this job.”

This is the most common complaint I hear from contractors. Their Profit and Loss statement may tell them they’re making money, but they usually don’t know where. Worse yet, they don’t even know where to start looking to find an answer to their question.

Effective job costing (in combination with proper planning and scheduling) can turn losing jobs into winners. The most important report for your bookkeeper to produce is a weekly (I prefer daily) job-cost report for each job in progress.

For a contractor, job costing is the process of comparing direct costs (material costs, field-labor hours and dollars, equipment hours and dollars, and subcontractor costs bid into a specific project) to the actual hours and dollars expended on these same categories.

Good job costing starts in the bidding process. Unless you establish appropriate, clearly defined standards in the bid, you have nothing against which to compare actual field performance.

Types of Data to Identify

The types of information a job costing system should provide and the format for this information are crucial. Whether manual or computer-generated, from an accounting program or a spreadsheet, you need the following direct cost information, at least weekly, for each of your jobs in progress.

1. Material costs: Job cost reports should identify all materials, sales taxes and delivery fees used on a job. As much as practical, vendor invoices should include materials used on one job only, and the name of the job should appear on the invoice for tracking purposes. Purchase orders or some sort of issue slip should be used for in-house inventory items used on projects. Otherwise, these items (i.e., sprinkler repair parts) won’t be charged to jobs accurately.
2. Field-labor costs: It’s important to identify labor hours and the actual dollar cost of those hours (if possible), and to compare them to your budget. If you don’t track and compare both, the project could be on-budget for hours but be over-budget in dollars if the crew actually working on the job was higher-priced labor than what was used to bid the project.
3. Equipment: Identify equipment targets just as we did in the labor category above. Hours accounted for should only include equipment “meter” or running time. However, if a truck is used to transport the crew, track and combine its meter (drive time) and its curb time, when it just sits at the site with its engine turned off. Convert equipment hours into dollars by multiplying the hours charged to a job by your cost per hour (CPH) for each piece of equipment.
4. Subcontractors: Just like materials, subcontractor costs should be identified and charged to jobs by means of specific invoices for each job.

Once these four categories of information are converted to dollars in your job-cost system, you only need to add your field-labor burden percent (FICA, FUTA, SUTA, WCI, holiday & vacation pay, etc.) to your field labor to identify your actual gross profit margin (GPM).

Although job costing through your accounting software program is the best method, alternative methods, either manual or computerized, can achieve significant results for your operation. Job costing need not be overly complicated. You can start with your very next job, if you can pull out labor and equipment hours, as well as your material and subcontractor costs, from your bid.

Job costing provides a “reality check” for your bids. If you bid jobs at a 30 percent GPM, you should see a 30 percent GPM on your job-cost reports. If the two differ, job costing will give you the tools to research, identify and correct this variance.

Jim Huston is president of J.R. Huston Enterprises, Inc., which specializes in construction and services management consulting to the Green Industry. Mr. Huston is a regular speaker at Hunter events.