How to Track Time Towards Job Costing

How to Track Time Towards Job Costing

Continued business growth is a goal for many construction companies. One of the ways companies can achieve that is by making changes to operate more efficiently. Tracking construction costs through job costing is one of the best ways to determine labor productivity. And time cards are one of the best ways to determine labor productivity.

Job costing allows construction companies to use historical information on actual costs against estimates to provide more accuracy in estimating. So, the smaller the differential between actuals and estimates, then the labor productivity was more efficient and the entire project more profitable.

What is job costing?

Job costing is an accounting function the breaks down project costs into cost codes to equal the contract costs. The cost codes are a breakdown of project installation tasks by chronological order, physical location, and logistical types. It may seem like an extra layer of information to capture, but using cost codes provides important details in terms of pinpointing job cost and productivity by specific types of work. Cost codes vary among different trades and are company-specific in terms of what each company wishes to track.

Below are samples of cost codes in various trades:

Some contractors start job costing at the construction phase and will simply track costs to date. Job costing at this level is good but has limited benefits. If you have nothing to measure against then you have no baseline to judge performance. Effective job costing requires a thorough estimate provided at the beginning of the project which has labor budgets broken down by cost codes. Construction project management software enables a project manager to easily load estimated budgets including cost codes. As the construction project progresses, the project manager can update costs to track and manage against the estimate.

Why are time cards important in job costing?

The completion of time cards in the field is central to job costing. Tracking time in the field is usually a laborious process for the foreman and field workers, and adding cost codes to those hours adds another layer of complexity. However, many construction project management solutions provide a native mobile app component. Directly from his smartphone, the foreman completes time cards with associated cost codes including a complete daily work report. This process can be done quickly and as easily as sending a text message even when offline. The Foreman can complete the report and then the information will sync when an internet connection is available.

The Foreman enters time card information providing real-time updates to the back office. Then the Project Manager tracks and compares the actual hours against the budgeted hours. Proactive project management involves tracking time cards towards job costing to catch any early indicators that the job is going off budget. Cost codes are effective to highlight specifically where the problem is.

In the above example, the project manager and foreman are able to collaborate and determine what specifically is causing the cost code of Conduit Rough-in to take longer than anticipated. For that task, the time cards have tracked that 29% of hours budgeted have been used, however the project manager has determined that task is only 25% complete. It may seem like a small difference, but if the current levels continue the team is at risk of going over the budget hours. Detecting and resolving an issue quicker minimizes the damage to schedule and profits.

Moving forward with time tracking and job costing

Because labor is the biggest cost for any subcontractor, tracking time is key to labor productivity and profit protection. Job costing helps provide visibility into how labor productivity is progressing against the estimated budgeted, and cost codes help to understand the specific tasks that are performing well at in terms of labor efficiency. This is valuable information that can used for the Estimator to adjust the labor standards according to the team’s ability to perform the task.

For cost codes in which actual hours worked went above the estimated hours, the estimator increases the number of hours for that cost code for future projects to protect profits. On the other hand, for cost codes in which actual hours ended up below the estimated hours, the estimator decreases the number of hours which may produce a more competitively priced bid. Tracking time towards job costing provides more accurate estimates in order to protect a subcontractor’s profits.

Watch On-Demand:

Resource: Full Cycle Job Costing Webinar