Published on the 09/12/2014 | Written by MYOB
The resident experts at MYOB provide some insights into job costing best practices and software designed to support it…
Job costing (or project costing, depending on your industry) is the process of tracking the expenses of a job against the budget and seeing if you’re making profit or loss. A ‘job’ simply refers to work performed on a project basis, as opposed to ongoing operations. Job costing is mainly used by businesses which have a high dollar value per customer with a relatively low number of customers. Building contractors, subcontractors, architects and consultants often use job costing, whereas retailers, for example, typically don’t.
What is job costing software?
Job costing software enables you to keep track of a variety of costs of a job or project. It should also help you to make fast and well-informed decisions quickly. Any business that needs to apply costs to jobs can benefit from job costing software.
The benefits at a glance
- Profit visibility – pinpoint which jobs make you money so you can focus on the profitable ones
- More accurate quoting – create quotes that more accurately reflect your true costs
- Planning – better visibility of your job costs lets you be more accurate with your planning and budget forecasting
- Less resource wastage – job costing software helps you to be more efficient with resource management, which positively affects your bottom line
- Better informed customer service – clearer insights into your job and project costs make it easier to quickly respond to customer needs and questions with accurate real time information.
Job costing software – digging deeper into the details
Job and project management software not only helps you save time and money but reduces errors and duplicate data entry. It also makes it easy to check the profitability of your jobs and projects in real time. But there are more benefits:
Get your data in real time
Job costing software gives you accurate, realtime data whenever you need it. By entering budgets, orders and costs as they occur, you can easily stay on top of your jobs and projects and assess profitability at any given point in time.
You can also view cost transactions and minimum margin percentages, and compare estimated with actual costs – all in real time. You can also receive email alerts when jobs are under or over budget. This means you can identify trends and fix potential issues before they lead to missed deadlines and budget blow-outs.
No more time needs to be wasted by you or your project team trying to get jobs back on track and there will be no surprises at the end of your jobs or projects.
You can also use the accumulated historical data in job costing software to guide you on the types of jobs that are unlikely to result in a profit, so you can steer clear of them in future.
Streamlined processes and well-organised project management reduces errors, resource consumption and lead-times, and helps you to operate more efficiently. Smart job costing systems give you a common database available across the business, which streamlines and speeds up processes and increases accuracy. You can set up automatic reports to keep the management team updated and to increase your control over the production process.
Job costing software lets you plan and forecast more accurately, helping you and your team commit to delivery dates. This means less stress at work and increased customer satisfaction, leading to improved loyalty, revenue and profit.
Better cost tracking
Manual or spreadsheet-based revenue and cost tracking can become tedious, expensive and errorprone. This is especially so when your business is growing and the number and complexity of jobs increases. Job costing software ensures accuracy, minimises errors and decreases the time you spend searching for, entering, updating and analysing data.
Knowing the real cost of a project is crucial. Without this you won’t be able to quote accurately and this will affect your profit. Job costing software helps you to quickly get an accurate picture of the true cost of a project without spending endless hours on complicated accounting chores.
Job costing systems make it easy to know where you are proficient by outlining the parts of a project cost you more than planned and which parts earn you money. This will help you to make informed decisions in the future. For instance, you may decide to spend more time on the profitable components, and outsource the other parts.
When you know which areas in a project cost too much, you’ll have a good idea of the strengths and weaknesses in your operations. You can then remedy your weaknesses so that future projects will bring in more profit. This might include training employees in certain areas or employing someone with different skills.
Achieving better cash flow
By the time you win a job, you have already poured significant resources into it thanks to the lengthy bidding process, manpower on the job site, purchasing materials and renting equipment to name a few.
Successful contractors use job costing software to manage their cash flow on a daily basis. They use it to manage costs and work schedules, and to access job information in an organised fashion. Quick, easy and automated invoicing and reminders help you to maintain a healthy cash flow.
Improved project management and reporting
It’s important to know where all your jobs stand at any given moment so you can address issues before it’s too late. Successful operations use job costing software to get accurate work in progress and percent complete reports so they know where each job or project stands. For example, if only a quarter of a job is complete but half the budget is already spent, job costing software will automatically send an email alert.
Generate more accurate estimates
One of the fastest ways to lose money is through the estimating process. Job costing software quickly generates accurate estimates based on historical data. The software also accurately calculates labour rates, materials and other expenses.
For example, you might make an error and bid for a job using $50 per hour as a fully-burdened labour rate, when the true rate over the last year has been $51 per hour. With job costing software this information would be clearly visible to you, and the costly mistake would be avoided.
Create better work schedules
As a project manager, it’s crucial to allocate your labour properly because inaccurate job schedules can cause work stoppages and cost you money. For example, you might have booked five workers for a job then realise that you’re ahead of schedule and only need four – when it’s too late. Job costing software will show if you’re ahead or behind schedule so you can plan your labour intelligently.