How to Get a Grip on Your Job Costs

What's the worst part of losing a grip on your contracting company's job costs?

Billable costs not making it to the final invoice? The difficulty of identifying which jobs are actually making money? The productivity-killing chore of reassembling ill-managed records?

How about all of the above?

Managing job costs is difficult for any contracting business. After all, the very nature of contracting conspires against making it an easy task. Job work is complex and dynamic. Conditions change. Costs fluctuate.

It's a constant business challenge. But contractors who give the problem serious attention gain major advantages over competitors who haven't done the same.

I spoke with Tim Law, Vice President of Sales & Marketing at Intersoft Systems to dig deeper into the job cost software opportunity. Tim is an expert on the topic. Intersoft Systems provides accounting and management software and has a particularly strong focus on meeting the needs of construction businesses. Tim has spent the last 8 years consulting with companies to help them leverage technology to improve management tasks such as job costing.

How Has Construction Job Costing Changed in the Last 10 or 15 Years?

No doubt, the last 10 to 15 years have seen some dramatic changes in technology, and there doesn't seem to be any end in sight. While many of the changes have brought incremental improvements, some have been real game changers.

The broad acceptance of mobile devices like smart phones and tablets is changing the way things are being done in the field. These are also driving a whole new class of web-enabled software platforms which allow the field to be connected to the rest of the enterprise.

In our experience, electronic document management has been one of the most significant software enhancements in recent years. Beyond becoming a standard feature, this capability offers significant benefits across the entire organization.

Converting all those paper archives to a digital format not only saves the costs associated with maintaining all that paper, it also makes that documentation readily available to the entire team.

How Can Contractors Use Job Costing to Improve the Way They Do Business?

We like to say: "An accounting system is only as good as the information you can get out of it". Beyond just capturing income and expenses, a true job cost system must be able to provide accurate and timely information about the jobs in progress.

Things like:

• Tracking costs by phase or cost code to monitor how each portion of the job is performing.
• Comparing these costs with estimated costs to monitor estimating accuracy or spot problems on the job before it's too late to address them.
• Monitoring billings to ensure accuracy and avoid overpayments.
• Comparing historical data can provide all sorts of performance assessments.

Having a system that enables you to create reports in formats that are meaningful to the various team members is critical. Experience has shown us that every company has slightly different preferences for how they want their reporting data presented. This may be the most important consideration for a good job cost system.

Do General Contractors and Subcontractors Need Different Types of Software for Job Costing?

In general, the core aspects of a job cost system are the same for both general contractors and subcontractors. However, there are unique requirements in almost every situation. That is one of the reasons that Intersoft Systems chooses to offer our construction suite in an à la carte model, allowing each contractor to select the appropriate applications to address their particular requirements.

While the core job cost functionality is the same for all, there are a series of specialty applications that may be added to fill out the necessary functionality.

For example:

• General contractors may want the Subcontractor Control system to help them manage contracts, track subcontractor insurance status, and manage the billing cycles.
• Heavy contractors will likely utilize the Equipment Cost system to help manage the revenue, costs, and maintenance for their fleet of machinery.
• Specialty contractors may have a need for an inventory control system to manage the inventory for their maintenance and repair operations. There is a good reason why there are so many viable options in construction accounting and job cost software. It is important for a contactor to select a system that has the appropriate applications to address their specific needs.

Is There an Advantage to Having Job Cost Software Integrated With Other Core Accounting and Business Applications?

Having a fully integrated job cost accounting system offers significant advantages.

• Data flows seamlessly between integrated applications
• Eliminates the need for multiple entry.
• Reduces errors
• Streamlines the entire accounting process
• Allows for more sophisticated reporting by having data from interfacing applications available

Integration may mean that one vendor provides all the applications as a unified solution. However, most modern systems are also capable of integrating with 3rd party applications, so you can utilize systems from multiple vendors, and still have an integrated solution.

For example: There are lots of specialized estimating systems that can easily share their estimating data with a variety of job cost systems. Integrating time clock systems with payroll is another common scenario.

How Can Contractors Tell the Difference Between Good and Bad Job Cost Software?

There are a few simple questions that can help a construction firm to determine whether they are being adequately served by their job cost accounting system.

Does it provide:

• Timely job cost reporting that enables you to proactively address issues on a job rather than reacting after it is too late to make a difference?
• Financial reporting information that satisfies you, your banker, your bonding agent, owners, or general contractors you may be working for?
• The tools necessary for your accounting staff to be efficient at providing all this information? If the answer to any of these questions is no, then it may be time to reevaluate.

What Kind of Results Can Contractors Expect When They Add Job Costing Software or Upgrade to a Better Program?

There are lots of benefits that come with having the appropriate construction accounting software. It should make the accounting staff more efficient, the management team more effective, and the organization more profitable.

For example, just taking advantage of the electronic document management system brought all of the following business results to one of our long-time users:

• The Document Management Approval System has been a very effective tool in streamlining the entire approval process. Incoming documentation is scanned immediately, coded with the appropriate vendor information and routed directly to the appropriate project manager for review and approval. Each project manager receives an email reminder and they are able to log into their Approval System inbox remotely to review and release documents 24/7. They no longer need to return to the office to access and review their paperwork.
• The AP clerk is able to monitor all the pending documents and hold the appropriate people accountable. As the invoices are approved and released, they flow directly into the AP process for payment.
• DMS has been a great productivity enhancement, allowing the accounting staff to be much more efficient, processing the same volume of work with 20% fewer people.
• In addition to the savings in personnel costs, document management is also saving about $2,000 per year in storage costs for the 20 boxes per year of archives that are no longer being generated. As the remaining archives are replaced by DMS, the net savings will grow to $20,000.

For more great insights on using technology to improve the profitability of your contracting business, follow Intersoft Systems on Google+ and Facebook.