General contractors serve a vital role in managing schedules and timelines for its teams of subcontractors. They utilize project cost accounting to manage and forecast the overall project budgets—at the highest level. On the other hand, an electrical or mechanical subcontractor manages and forecasts their portion of the budget—at the most detailed level. This is where managing construction cost codes is the most important for an electrical or mechanical subcontractor versus a general contractor.
Construction cost codes track specific labor activities. Managing construction cost codes may seem like too detailed and complicated for a general contractor. However, for electrical or mechanical subcontractors, whose most significant risk to profit is labor, must budget, analyze, and forecast down to cost code level. For electrical and mechanical subcontractors to utilize construction cost codes most effectively to manage project costs, we have provided a few helpful hints below.
Work Breakdown Structure
A work breakdown structure (WBS), as defined in the Project Management Body of Knowledge, is “a deliverable-oriented hierarchical decomposition of the work to be executed by the project team to accomplish the project objectives and create the required deliverables.” In the simplest terms, a WBS breaks down large projects into smaller deliverables. This helps organize large construction projects into a more manageable set of deliverables and tasks. The work package represents the list of tasks or “to-dos” to produce the specific unit of work. Above all, the “to-dos” are tracked labor activities that can be assigned specific cost codes for tracking purposes.
Creating the Building Blocks for Construction Cost Codes and Job Costing
Systems and Phases – For electrical and mechanical subcontractors working on large commercial projects, it is helpful to develop a work breakdown structure based on system and phases. For example, a system may be a building, and a phase will be a floor or level of that building. Multiple phases (floors) will be part of a system (building). Similarly, multiple systems (building) may belong to a single project (campus).
Cost Codes – Cost codes is an accounting term for labor activity. Employees of electrical and mechanical contractors indicate the specific type of work completed during the day. The foreman or employee tracks labor hours on time cards. Subcontractors use cost codes to track productivity and project expenses. Therefore, it is essential that they are broken down and translated into how work can be easily described, measured, and monitored. We advise many electrical and mechanical subcontractors to keep it simple for easier management.
Job Costing – All the cost codes and labor activities do not live in a vacuum. The information is critical for job costing which is the process by which an electrical or mechanical contractor collects real-time cost and labor activity information associated with a specific project. Hence, project managers for electrical or mechanical contractors use job costing to track actual costs against estimates by cost codes. This will enable them to determine in what ways projects went over budget in explicit detail—by phase and by cost codes.
Project Management Systems and Construction Cost Codes
Developing a work breakdown structure and construction codes are necessary for electrical and mechanical subcontractors versus general contractors. A work breakdown structure is based on labor activities. Therefore, it makes the most sense for a work breakdown structure and cost codes for a project to be utilized by those who actually do the work on the project (mechanical and electrical subcontractors) versus those who are coordinating the project (general contractors). Because of this need, electrical and mechanical contractors should implement a project management system designed for subcontractors. Unfortunately, many construction management systems are designed for general contractors. Therefore, they do not provide the labor tracking capabilities that electrical and mechanical contractors need.
Project forecasts for electrical and mechanical contractors are highly dependent on having accurate labor data. So, an essential workflow for construction project management systems designed for electrical and mechanical contractors includes reporting of labor hours expended and material installed by cost code. The foreman logs this information through the daily reports or time cards.
With labor hours tied to construction cost codes, project managers use this to track actual hours against estimated hours. Most noteworthy, they can determine the percent of efficiency for their crew. If the crew is not performing efficiently, they can dive deeper to determine the reason. Was the estimate off? Do we need to adjust the crew? Finally, no longer does a project manager rely on gut feel.
Managing construction cost codes for an electrical or mechanical subcontractor empowers the team with actual data on project health. As a result, no longer do surprises occur at the end of the project. Tracking costs through construction cost codes in real time allows electrical and mechanical subcontractors to discover potential cost issues early.