Job Costing is Essential for Construction Estimators

Through construction job costing, businesses can maximize profit margins and prevent cost overruns.

Source : Volkan Olmez on Unsplash

September 16, 2022

Author : Alex Bustillos

For a government construction contractors, an essential part of their job is bidding on projects. To win the contract and make a profit, it is necessary to make the right cost estimation based on accurate job costing, not just assumptions.

Job costing in construction refers to managing, allocating, and estimating project-specific expenses. Traditionally, job costs comprise labor, materials, equipment, and other expenses. When performed correctly, job costing accurately evaluates a contract's profitability.

There are usually two types of costs associated with a construction project. There are direct costs, which include labor (payroll, taxes, insurance, benefits, dues, etc.), materials, and any other expenditures that may be directly linked to a particular job (i.e., subcontractors, performance bonds, etc.). 

There are also indirect charges, sometimes known as overhead expenses. These indirect costs include insurance, depreciation on property and equipment, labor (i.e., back-office staff, project managers, and estimators), and travel and automobile-related expenses.

KPMG Global Construction Survey reveals that only 31% of construction projects are completed within 10% of their budget. Job costing is tough, even when performed correctly.

Macro economic factors are also impacting job costing. As we previously reported some experts are suggesting that rising inflation could use up about 20% of the infrastructure stimulus funds.

However, with all of this in mind, let’s look at the benefits of running a smart office by doing accurate job costing:

  1. It produces cash flow. It is crucial to correctly and promptly invoice consumers for services performed. Typically, a corporation incurs expenditures for completed work before billing its clients.
  2. Comparing actual expenses to the initial estimate lets you identify process savings and inefficiencies.
  3. Identifying task inefficiencies may enable a corporation to file a claim for potential labor overruns or delays.
  4. Certain staff can be rewarded for beating expectations, while the management can identify those that consistently underperform and reduce profitability. This personnel with poor performance may be retrained or sacked.
  5. Analyzing the savings and inefficiencies enables businesses to more accurately estimate and bid on future projects and find common elements (e.g., size, complexity, etc.) that can aid executives in identifying prospective future projects.

Also it’s important to note how important construction codes are for making accurate job cost estimations. When setting a budget for a construction project, construction codes are essential. Project managers, accountants, and estimators use cost code information to analyze job progress and generate budgets.

Construction companies are using technology to automate the job costing and estimation process. 

Construction job costing is a complex procedure and thus requires technological assistance such as electronic bidding tools, computer-aided scheduling, digital take-off tool, etc. STACK is a popular cloud-based software tool that provides reliable support to all construction projects. Electronic job costing tools can help job expenses, review tax rates, and many more. 

Job costing can also fit into how a firm does the required outreach on government construction jobs. The Good Faith Effort outreach platform Compliance News, for example, can help estimators cut costs, by quickly and efficiently generating outreach bid documents for federal or state-funded construction projects.

Job costs become crucial as a construction firm grows. Cash flow is crucial, and organizations can only earn and collect it when they fill their job cost accurately. Accurate record-keeping helps recognize accomplishments and avoid failures. Lenders and bonding businesses want GAAP-compliant financial accounts. This requires job costing. Job order costing provides precise information on how much a project should cost. 

Through construction job costing, businesses can maximize profit margins and prevent cost overruns.

Category : Construction Management Software Efficiency-Improving Technology Entrepreneurialism Market Watch Material Costs Public-Private Partnership Procurement Public Works

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