Don’t Shirk the Software When it Comes to Job Cost Accounting

Q:
When I purchased a popular low-end accounting system for our contracting business, I was told it would allow me to use purchase orders to track committed costs or subcontractor bids. However, I have been struggling to get an accurate committed cost report by job.  To get up-to-date information, I have been exporting the report to spreadsheets, doing my own calculations and then adding this information into yet another spreadsheet to see actual versus estimate costs as well as committed costs. Am I missing something here?  There must be an easier way.

Travis
A:
There is an easier way. And the thing you are missing is called job cost accounting software.

Despite what you’ve been told, it’s highly unlikely that generic, off-the-shelf accounting software can accurately track committed costs by job. General accounting systems all have accounts payable and some have purchasing, but because there is no job cost module, this information cannot be tracked by job (or cost code, phase or activity). In addition, subcontracts are a unique type of accounts payable (which can vary by agreement and payment terms) and are usually addressed only by construction-specific accounting systems.

A good job cost system uses purchase orders and subcontracts to track committed costs as they occur. It allows contractors to produce real-time job cost reports with such details as the original committed costs, billings/invoices against those costs and any remaining committed costs. In addition, most job cost systems have safeguards in place to:  1) guarantee that overpayments are not made to suppliers or subcontractors and 2) verify that subcontractors have valid, up-to-date workers’ compensation and certificates of insurance.

Unfortunately, this is just one example of the frustrations growing contractors face when using a general purpose accounting system. There are also limitations regarding financial reporting, payroll, billing, equipment, cost management, and other areas unique to construction. The real value of construction-specific accounting systems lies in their ability to provide contractors with accurate and up-to-date information for better decision making. Committed cost reporting is just one piece of your job cost data puzzle.

Fred

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Construction Business Owner, December 2008