It is quite a difficult task and a long process, as a lot of computation is involved, from costs of various inputs like overhead and labour costs, project size, location, infrastructure and the type of project.
Aside from that, there should be allowances for cost variance, bonds and miscellaneous expenses. At the bottom line is the profit to be realized from the project.
While some contractors still use the manual method for preparing a cost estimate/bid, there are many advantages and benefits to be gained from using a job costing software.
Information needed to improve business performance
Contractors, like other business owners, are after income and expenses, and they want to have a real job cost system that is able to give them timely and accurate information about all the jobs they have in progress. Contractors want to do and know many things like:
- How each part of the project performs by tracking costs by phase or cost code
- Comparing actual costs and estimated costs to check accuracy or identify problems on the job early
- Accurate billing and avoiding overpayments
- Comparing historical data for various forms of assessing performance
- Generate reports in different formats that are easy to understand, in a style that is appropriate to different departments and team members
Requirements for a good job costing system
While there is only one core system that contractors and subcontractors use, the good job costing system should be flexible, and customisable, in order for it to address specific requirements.
For example, a general contractor may need the subcontractor control system for contract and billing cycle management and track insurance status of subcontractors.
A specialty contractor might need an inventory control system while heavy equipment contractor will most likely need an equipment cost system to aid in the management of costs, revenue and maintenance of their machinery.
Benefits of a job costing program
A good job costing software could be integrated into other core business and accounting applications. It will mean error reduction and elimination of the need to enter data multiple times.
Moreover, a job costing program streamlines a company’s entire accounting process, with seamless flow of data among integrated applications to generate consistent, accurate and sophisticated reports.
With the right job costing program, you can easily calculate costs for overhead, materials and labour before you start a project. It increases your profitability because you can quickly and separately allocate costs for each company operation and estimate the profit you will realise from each job.
You will be able to assess how well each employee is performing. A job costing software enables you to evaluate an individual employee’s job performance in terms of productivity, efficiency and cost control.
If you get a comprehensive job costing software, you will be able to access all the expenses incurred for every job you’ve done.
You can go over every single cost and even identify all the inclusions for better cost control in the future. It can also help you calculate indirect costs, like manufacturing overhead, which is difficult to do manually.
You do not have to second guess as reports and information you get will be accurate. A robust job costing software will be able to direct particular cost types into the right accounts.
Scalability is one of the main features of a good job costing software. This means that it can be modified to fit the specific needs of a business.
A job costing system allows you to monitor expenses as close to real time as possible. This provides you with some time to proactively address potential issues and risks and institute needed changes before anything disastrous happens.
Incomplete and inaccurate job costs can definitely lead to losses. Modern contractors need not worry about these as accurate cost projections are easier to manage and prepare, helping them realise better profit margins.