Count the costs
Greg Norris shares four ways to ensure effective job costing in heavy construction
One piece of information is more important than all others to a heavy construction contractor: whether they made – or are making – money on a project.
“Accurate and timely job costing is critical,” says Herb Brownett, a former chairman of the Construction Financial Management Association (CFMA) and CFO for a sitework contractor. “That strategic data should guide which future projects you pick, how you bid on them and how you monitor and remediate production issues as they are built.”
Brownett, now an industry consultant hosted a panel discussion on job costing for a software user conference in March. He and three fellow experts in construction finance and operations agreed on the key components of an effective program.
Connect estimating and operations
“The foundation of a good project is the estimate, so we actually have our project managers very involved in bidding,” according to Cheryl Gustafson, program manager at Mears Group. That collaborative process brings operations perspective to estimating and ensures that production rates envisioned can be accomplished by the Colorado-based company. “We also look at unique features of a particular project that might mean that some of the history we have from similar work in the past won’t necessarily apply, and we build that into the estimates,” she adds. Mears provides energy infrastructure solutions and is a division of Quanta Services.
Superintendents and PMs are also involved in job costing and estimating at Union Concrete & Construction, a highway and bridge construction company in New York. “Because they see both sides of it, they tend to keep very good records and they’re very proactive in keeping the system going,” says controller Nick Osinski.
At Dallas 1 Construction, a sitework and utilities specialist in Florida, assistant estimators also work as assistant project managers. Putting bids together gives them a strong understanding of how the build process is supposed to work, according to CFO James Boyd. Brownett says when he was a CFO, identifying the specific superintendent for a potential job and bringing that person in to consult in the bidding process was standard operating procedure.
Brownett cautions contractors not to underestimate the sophistication and the ability of superintendents and project managers to understand job costing. “They can track job progress more accurately according to cost codes when they are involved in the entire process, and see how those codes are created and transferred from the estimating system to the accounting and field tracking systems.”
Get timely performance data
Gustafson sees field tracking with electronic daily logs as a critical piece of the job costing equation and a liaison between estimating and accounting systems. Daily is the operative word. “Everybody says they want timely job costing, but there’s a difference between saying it and actually being willing to take the steps necessary to integrate the systems and make it happen,” she says.
Accurate dashboard reports from the field tracking system – without having to wait for monthly financial reports – provide an immediate view of how a job is performing. “You need to see today’s production, the previous day’s and job-to-date performance, and compare it back to the estimate,” Gustafson explains. “The data allows you to control costs and it helps superintendents and foremen make good decisions in the field to drive profitability on the jobs.”
Boyd says Dallas 1 Construction has focused heavily over the past 18 months on getting field logs submitted by 8:00 am the following day. Superintendents then spend ‘serious time’ reviewing to make sure production accounts and equipment are correct. “From there, we created a report in the field tracking software that compares actual cost of production items versus what was estimated,” Boyd explains. “We look at it every single day to drive production and be as efficient as possible in the field. We’ve seen our gross margin creep up, because we’ve really been focused on driving production even better than what was estimated.”
Charge management and equipment to jobs
Osinski, Boyd, and Gustafson all agree, along with Brownett, on another best practice. The construction finance pros say management and equipment costs should be assigned to specific jobs.
Salaried superintendents and project managers are among the highest paid employees. Carrying their cost in general overhead accounts makes it impossible to get the true cost of a job and know whether it is profitable. That is particularly true for jobs that require a disproportionate amount of management time or expertise. When office personnel such as administrators, coordinators or engineers work across multiple projects, all three contractors recommend dividing and billing their time to each specific job, to the extent possible.
Equipment costs are similar. Contractors traditionally use some combination of idle, operating and ownership rates to account for the equipment requirements of each job and to discourage foremen from hoarding underutilized assets on jobsites.
“Equipment is obviously a major expense in our heavy highway world,” Osinski explains. “You’re really underrepresenting what the work is costing if you’re not charging all of your equipment use.”
Create a job costing culture
Job costing may be a numbers game, but company culture plays an important role in getting it right.
“We’ve always had an adage that money is made in the field, managing a job and driving the productivity of crews, not in the office doing record keeping,” says Osinski. “In reality, we have to keep good, detailed records to know actually how well we did in the field so we can reproduce that and have it available when we bid future work.”
At Dallas 1, ‘get as much done in a day as we can’ used to be the adage and the approach in the field. Now, with daily job costing in place, senior managers spend time every day reviewing reports on performance in comparison with the plan and discussing the data with teams in the field.
“No one wants to be below the estimated cost, and it’s important to know where you stand,” says Boyd.
“Quite honestly, before this culture change, managers in the field didn’t know where they stood. That information is so important, and a strong field tracking system Driving accountability is never easy, but once people get used to it, they have so much more job satisfaction,” Boyd concludes.
There is a clear bottom-line satisfaction too for contractors that establish effective, accurate job costing capabilities.
“I always hated sitting in a post-job review meeting and hearing that we lost money on a project because we didn’t have good productivity on that pipe run that we spent three weeks on,” recalls Brownett. “Maybe after day two or three, if they had known productivity was not good, something could have been done about it.”
“We haven’t lost money on a single project in well over 20 years because we are very thorough at bidding and we really know what work has cost us in the past because our job costing system is so accurate,” Osinski concludes.
Greg Norris is Director of Marketing Communications at B2W Software. The company’s ONE Platform connects people, workflows and data and includes advanced, unified applications to manage estimating, scheduling, field tracking, equipment maintenance, data capture and business intelligence. Greg can be reached at: email@example.com.