Job costing is a financial activity that helps construction industry businesses estimate the total cost of a project before it starts. This method takes into account all expenses related to materials, labor, time tracking, and overhead expenses. They are vital for setting budgets and ensuring projects don’t exceed their financial boundaries, are profitable, and meet deadlines and expectations.
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How to Calculate Construction Job Costing and What is Included
Calculating construction job costing begins with breaking down the project into its essential components: materials, labor, time tracking, and overhead costs. Each of these categories is meticulously calculated to provide a comprehensive view of the total cost.
Materials encompass everything from the nails in the walls to the concrete in the foundation. The cost calculation here involves listing each item needed and its price, which can vary based on quantity and supplier. Labor costs are determined by estimating the hours it will take for each worker to complete their part of the project, multiplied by their hourly wage rates. This includes everyone from the carpenters to the electricians. Time costs refer to having clarity on the executive capacity of your crew in order to provide accurate estimates on when a particular project can be delivered. Overhead costs are the trickier part, covering expenses not directly tied to physical construction but essential for project completion, such as permits, insurance, and equipment rentals.
By summing up these components, a construction firm can arrive at the total job cost, setting the stage for accurate bidding and financial planning for the project.
How to Track Time in Construction 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 to help you simplify the time cards process.
Directly from a smartphone, the foreman can complete time cards with associated cost codes including a complete daily work report to have better visibility and job costing clarity. With eSUB Cloud, 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.
Afterwards, the Project Manager can track and compare 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.
Note: Cost codes are effective to highlight specifically the problem areas for any given project (See example below)
In this 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.
Best Practices to Improve Job Costing in Construction
While there are many aspects that can help subcontractors improve job costing, there are the key aspects you should prioritize.
- Implement Software Solutions: Adopt construction management software that integrates job costing features. This technology can streamline tracking of labor, materials, time-tracking and overhead costs in real time, enhancing accuracy and efficiency.
- Regularly Update Cost Estimates: Keep your cost estimates dynamic and updated. Whenever you receive new information about labor costs, material prices, or any changes be sure to update the project scope to ensure they always reflect the current state.
- Improve Cost Tracking: Every expense, no matter how small, must be tracked and categorized correctly. This includes indirect costs, which are often overlooked but can accumulate and significantly affect projects.
- Standardize Procedures: Develop standardized procedures for estimating, bidding, and tracking costs. Use standardized cost codes for your specific trade, and keep being consistent to reduce errors and improve reliability.
- Enhance Communication: Foster open lines of communication among your entire crew. Timely and accurate sharing of information can prevent costly misunderstandings and oversights. This is particularly important between field and office communication.
- Conduct Regular Reviews: Schedule regular review meetings to assess the financial performance of ongoing projects. This helps in identifying any deviations from the budget early on and allows for corrective actions to be taken.
- Train Your Team: Ensure your team is well-trained in job costing methods and software. Employees that understand why this matters are less likely to make costly mistakes and more likely to identify efficiencies or problems before they happen.
- Use Historical Data: Leverage data from past projects to inform your job costing. Understanding where actual costs have differed from estimates in the past can guide more accurate future projections, improving your bottom line.
- Focus on Accuracy in Bidding: Use detailed and accurate job costing to inform your bids. This reduces the risk of underbidding (and losing money) or overbidding (and losing the job).
- Invest in Expertise: Consider hiring or consulting with experts in construction economics or cost engineering to refine your job costing processes. Their insights can help optimize your cost estimation and tracking methods.
Should You Use Construction Job Costing Software?
For any construction business looking to stay competitive, reduce errors, and boost profitability, investing in job costing software isn’t just a good idea—it’s a game-changer.
Job costing software like eSUB Cloud automates and streamlines the tracking of materials, labor, time-tracking, and overhead costs, providing a real-time snapshot of financial health. It not only saves time but also enhances decision-making with accurate, up-to-date financial data.
At eSUB Cloud we have helped hundreds of trade contractors modernize their business, improve their job costing, and remain competitive by helping them with:
- Project management and scheduling
- Document management and collaboration
- Time tracking and labor management
- Change order and RFI tracking
- Daily reports and job costing
- Integration with popular accounting and estimating software
- Mobile app for iOS and Android devices
Improve your time tracking processes and say goodbye to timecard hassles today with eSUB Cloud.