Could you help baseball players become better hitters if you didn’t know their batting averages? Of course not. Then how can you run a construction project efficiently without a scorecard displaying your job costs?
Most small contractors don’t keep accurate and timely accounts of their budgets and job costs until it’s too late. They also don’t know how well they do until they’re finished with the project and the bills are paid. To make matters worse, some contractors never review a job’s final numbers, and they continue to bid with bad rates. In these cases, foremen and superintendents also don’t know whether they need to work faster or more efficiently to bring their jobs in on budget. The company owner doesn’t know how well the company is performing until the end of the year when he or she receives reports from the accountant.
When halftime comes in sporting events, winning coaches look at their strategies and player statistics to determine what adjustments are needed to win. Without statistics, they can only guess at what needs to be done for the team’s performance to improve. Thorough information is what business owners and managers use to make decisions. When they don’t consult data, they rely on luck. If you know where your job costs are at the halfway point in a project, you can make intelligent decisions to finish profitably.
Maintain Updated Job Cost Reports
Develop a construction job cost tracking system by using a spreadsheet similar to the example shown on page 10. The columns should at least include cost code, trade description, contract budget, committed subcontracts, non-committed cost to date, estimated cost to complete, estimated final cost and estimated variance. To get a complete, more detailed job cost report template, you can email gh@hardhatpresentations.com.
To track a job’s status, analyze your bid estimate and establish a realistic original budget. Then, update the project budget monthly, including any approved change orders. Your subcontracts and purchase orders are firm committed costs in column 4 (Figure 1) and shouldn’t vary, as you will be spending all of the committed contracts for these trades. Non-committed items you perform on a cost-plus basis, including labor, equipment and materials on self-performed work items, need to be tracked in column 5.
At the end of the month, the project manager will estimate how much additional money for labor, materials and equipment is required to complete the project. Enter your estimated cost to complete in column 6. Then, total the estimated final cost in column 7 and calculate your variance for each line item in column 8 to determine whether you are over or under budget at that point.
Knowledge is Power
As a professional construction business coach, I am amazed at the number of company owners who don’t track their job costs on a weekly or even monthly basis. I can’t understand why they work so hard without knowing the score. Employees who don’t know how well they’re doing have no reason to work harder.
Before my former company began using computers, I would take a few days every month to add up all costs committed and spent for each line item on every project under construction. Then I would meet with the project foremen or superintendents to determine the estimated costs to complete each project. By performing this task every month, I knew exactly how well each project was doing, my field team leaders stayed focused on hitting their goals, we always knew what was needed to finish on time and under budget and we had time to make the necessary adjustments when needed.
Now, with the use of computers, spreadsheets, fully integrated software accounting programs and professional construction bookkeepers, the monthly job cost update exercise takes 10 to 20 minutes per project to complete, update and review. There’s no excuse not to know the score on every job. To make more money, complete a job cost report for every project under construction at least once a month.
