Naomi Bagga is an Australian native living in Los Angeles, California, who has worked in media, marketing and sales.
How to improve your company's profits through Activity Based Costing
Have you ever wished you had more detail about what was going on at your jobsite? Construction sites are large, with a lot of employees, machinery and materials. This is often hard for management to monitor, with valuable data on costing, efficiency and profitability becoming too difficult to collect.
Activity Based Costing, or cost codes, is a method used by construction firms to ensure all work is accounted for on a project. By identifying what was done on a jobsite, how it was done and how long it took, and then assigning a cost, firms gain insight into what processes are working and what can be improved—invaluable information for business development. In fact, according to research conducted by The Harvard Business Review, The Chrysler Corporation has generated hundreds of millions of dollars in benefits since its implementation of activity based costing in 1991. And with the development of technologies like time tracking apps, utilizing cost codes has become faster and more manageable so there is no reason not to be using it. Not convinced? Check out the four key benefits of cost codes for your next construction project.
1. Effectively Manage Costs
Job costing using cost codes is a fast and effective technique to identify the cost of various parts of your jobsite. Whether it is specific activities, specific workers, accountants or the supervisor, cost codes relay costing information in a detailed and easy-to-read fashion. Once this information is collected, you have the luxury of evaluating what is costing you more than it should, and then making the necessary adjustments to improve budget efficiency. No longer are the days when you are wasting money and resources.
2. Effectively Manage Time
In the same way that you can attach a cost to each activity and worker, cost codes also provide the convenience of managing time on a project. Equipment and labor can be tracked to identify what activity it was used for and how long it took to complete, providing valuable information on what is working well and what tasks are taking too long. From here, management can make crucial decisions to improve productivity across the jobsite, cutting out extra time, money and materials.
3. Identifying Profit Centers
Due to the nature of production and its often large-scale projects, the construction industry often faces the challenge of not being able to identify what activities are profitable and what is causing wastage. By using cost codes, management is able to collect the necessary data on specific tasks, employees and equipment, needed to evaluate what is efficient enough to increase profit and what is causing the project to lose money. Identifying this information early on can often be difference between a successful project and one that lost a lot of money and could not be completed.
4. Sustainable Growth
Taking all this information on cost, time and profitability, comes probably the greatest benefit of implementing cost codes—the ability to identify areas where sustainable growth is possible. Through detailed data on most aspects of their jobsite, firms are empowered with the information needed to grow their business. They are provided with a clear picture on where they can afford to grow, at what rate they can grow and how much the growth will cost them. This could lead to crucial business decisions that could see a significant boom in a firm’s development.
Cost codes are a fast and effective method that provides a lot of value to construction firms. Not only does it assist in the management of time and costs, the granular and relevant data collected can revolutionize productivity and efficiency, which can boost profits and overall business growth.