- Features | January 9, 2013
Full-Cycle Job Costing
It starts with job costing, the process by which a contractor uses historical data from completed projects to determine their company's ability to perform installations.
Mistakes during a project are easy to make, but the silver lining to those mistakes is what we learn from them and how we use that knowledge to improve practices. Knowing exactly how your company performs against estimated labor and materials for a project is key to understanding the impact of budgeted versus actual costs. That is the very definition of job costing.
Full-Cycle Job Costing is the secret to maintaining and even increasing profits that support sustainable business growth, regardless of what the larger, macro-economic conditions may be like.
Due to the intricacies of Full-Cycle Job Costing, it is critical to have a fundamental process in place to execute projects efficiently and consistently from start to finish. A key element to that success is following a process that begins with a detailed, accurate estimate that provides critical job documentation, specifications, and correspondence to project managers, allowing them to make quick and effective decisions during the installation process.
This flow of information from the estimator to the project manager will help save the contractor valuable time by having a comprehensive estimate against which they can measure and track the actual costs of the project. However, moving information from estimating to project management isn't the only step that will give a contractor the information they need to determine true job costs. There's another key element in the process that, when missing, will cause contractors to fall short on their ability to maintain or increase profits.
Four Steps to Full-Cycle Job Costing
Full-Cycle Job Costing is a four-step process, by which the project manager provides feedback to the estimator with statistics that measure the company’s actual ability to perform the work as it was estimated. Those results and statistics are then implemented and used to improve estimating accuracy. Missing this vital step in the project’s life cycle is what causes contractors to repeat the same mistakes again and again, jeopardizing valuable profits that support sustainable business growth – in good times and bad.
STEP 1: Start with a complete and comprehensive estimating program
The estimate is at the center of Full-Cycle Job Costing. To effectively manage a project, a detailed budget is critical for measuring estimated costs versus the actual costs at any point during the project, and that's what an accurate estimate provides.
A formal estimating system will help produce more accurate and consistent estimates. This is especially critical in today’s market when allotted estimating time has become shorter while the projects have become far more detailed. Estimates can be required in almost any breakdown combination of base prices, alternate prices, itemized prices, unit prices, etc. Contractors are faced with less time to complete a detailed estimate that has accounted for cost, schedule, and risk.
Today, just getting the estimate completed is a challenge, leaving little − if any − time to properly understand the potential risks on a project. When a project starts to lose money, it is typically because the labor costs have gone over budget.
A comprehensive estimating program gives the estimator the ability to generate a more consistent, accurate estimat