5 Questions To Ask Before Buying Job Costing Software
Successful contractors understand that job costing can mean the difference between a profitable business and one that struggles. But installing a job costing system isn’t a silver bullet; it takes planning and work to see the benefits from job costing. Here are 5 questions you should ask before buying (or upgrading) your job costing software.
1. What Information is Needed?
As Steven Covey says, you want to “Begin with the end in mind”. It is important to determine the specific needs of your business. In order to get useful reports out of a job costing system, you have to collect and enter the data you need for those reports. Companies that don’t take the time to define their needs often:
- Struggle to make a decision about which job costing system to purchase because they are overwhelmed with all of the available features. Some of them end up making decisions based on the favorite bells and whistles of the salesperson even though they don’t end up using those features.
- Waste a lot of time collecting data they never need
- Don’t set up the system to collect the information they need to make informed decisions about their jobs..
2. Who Needs Job Cost Information?
You will also want to determine who needs what information to do their job. While initially it may be quicker to create one master report that has the information that everyone needs, having reports that are tailored to deliver the information needed by different management roles (i.e. job foreman, supervisor, C.F.O., C.E.O, etc.) will make it easier to find the actionable data needed to make better decisions.
Don’t forget to consider the reporting needs for individuals outside of your company, like you banker or your bonding agent.
3. How Will Labor be Coded for Job Costing
Since labor is a large component of the overall cost of a job, one of the first issues you need to address is how that labor will be coded to the particular job and/or category. For example, will timecards come in from the field with correct job costing information? If so, who will code them – will the foreman code all of them or will each person code their own? Will your time keeping system need to be updated to handle job costing? If they will not be coded in the field, who will code the timecards (and when)?
Try to add job costing information to the time keeping records as quickly as possible. The longer the delay, the greater chance for error and the greater chance your people are making decisions with incomplete data.
4. Is There a Standard Budgeting Process for All Jobs?
Do you create budgets/estimates for all of your jobs? Many construction companies set up their job cost tracking system to mirror the budgeting system in order to easily compare budgeted vs. actual costs. If you don’t create budgets for all of your jobs, which costs will you track for those jobs? If your job cost tracking categories do not match your budgeting categories, how will make sure that all costs are being reported and nothing is falling through the cracks?
5. Do You have a Standard Process for Material Requisition and Purchase?
Just like labor, it is important to make sure you are recording and coding all material purchases to the correct jobs. Before you implement a job costing system (or as part of that process), you should have processes and procedures in place for requisitioning and purchasing materials. In addition to defining who can approve material purchases you will also want to define who has the authority/responsibility for coding accounts payable invoices and when they should be coded.
There are many other questions to consider, but these should give you a good start. If you have any questions or need help evaluating your needs, contact us for a free consultation.