Articles Written by Charles Vander Kooi

Overcoming obstacles to job costing

By Charles Vander Kooi

Many contractors do not have a job costing system because they feel that it is too difficult to implement. You may have tried before, but had problems and gave up. In any case, it's critical that you get back out there and try again.

Basically, in job costing you collect data on how long your people and equipment take on different tasks on each job. You use that information to create very accurate estimates for future jobs.

Without a job costing system you are operating in a vacuum. You are estimating that work will take a certain length of time to perform, but then have no way to determine if it took that long or not. When you don't know, you're likely to keep making the same estimating errors job after job and losing money you don't have to.

No doubt, it can be difficult to get job costing information from the field. When you ask field people for details on how their time was spent they tend to squirm. They think you don't trust them, that you're second-guessing them, or that you think they are not doing a good job. They don't want to do paperwork anyway. So, they may just not turn anything in. Or, they may smear some grease on it and drive over it a few times so you can't read it.

Modify timecards

The best way to get job costing data from employees is to tie it into the payroll. Modify your timecard to include spaces for job costing information and require that it be filled out completely for an employee to get paid. Do this, and you will get the numbers you need.

In the sample timecard (at the end of this article), the foreman lists all the people and equipment on the project for a given day. It is the foreman's role to keep time for their crew. If you put individual timecards in the hands of each worker, the chance of getting back accurate numbers are slim to none. You will want to include a place for each person to sign by their time, thus showing their agreement with the hours.

Next to each person’s name are several blocks where each worker’s hours are broken down by work functions. The function numbers were established by the estimator in their original bid sheet. For example, a function list might look like this:

Function number	Description

201	Grading
202	Base installation
203	Edge restraint
204	Sand installation
205	Paver laying

The foreman inserts the function numbers that apply to that day's work across the top. Then he fills in the hours each person and each piece of equipment spent in each function. On the right side you keep a daily total. Across the bottom you add the totals to determine the hours spent on each function. Everything is entered into the computer daily. So, at the end of the week you can total up Jim Smith’s or Chuck Casper’s total time for the week, for example. You can also see the hours spent that week on each function.

Create cost accounting reports

In the cost accounting report (at the end of this article), much of the information is generated from the bid and timecard information input into the computer. The "% completed" numbers are supplied by the project superintendent (or the contractor) each Friday. He goes over the job and gives his best estimate of how complete each work function is progressing. From there, the computer calculates the gain/loss information.

The report produces several positive results:

It helps you control jobs by telling you if something is going wrong within a few days rather than 30 days later when your books come back and it’s too late to do anything about it. On Monday morning you can be out on a job resolving a problem. Contractors who do a lot of small 1- or 2-day jobs should get this report on a daily basis.
The report sets meaningful benchmarks for your field people. They know how quickly they need to get something done before it will start costing the company money. These numbers can become a measurement of their ability, and they can find great pride in getting something done quicker than it was estimated to take.
The report gives you up-to-the-minute estimating costs. If something last week and the month before took longer than you estimated, you need to raise your labor production figures to reflect what is actually happening in the field.

Applying cost data requires savvy

The application of past labor production times to future jobs takes a personal touch. It takes someone who understands construction and the variables affecting different jobs. An estimator needs to be able to say, “This job is almost like that job we did, but it's going to take a little longer because ...” That’s the personal touch.

I know a company that almost went broke over this very thing. When they first started job costing they were picking up work like crazy. Their computer people were simply sticking costs from one job into another estimate without the personal touch. They were estimating jobs in rock, for example, using costs from jobs that were done in sandy soil, and so on.

1st you must sell job costing

Your success in starting and maintaining a good job costing system is largely determined well before you institute it. It begins with management communicating – and selling – to the field the great benefits that this system will bring to them and the company.

Field people often don't understand the purpose of job costing. Others may feel management has some ulterior motive that will end up costing them their jobs or future pay raises. So, they sabotage your efforts.

Here are several things you must communicate and sell to those who will be doing the record keeping in the field:

The primary purpose of job costing is to help the estimator to know what he's doing. Field people often think the only reason for job costing is to monitor their performance. They think that every time the estimate and actual performance differ they – the field – will be blamed.

Every estimate that goes out of your office ought to have input from field people. Field people can provide valuable information as to how long it took to do different job functions on previous jobs that were similar. If you can communicate and sell the estimator's need for job costing, field people should be more willing to keep the records needed for the process to work.
Job costing is a great motivator that lets people know what's expected of them. If you tell someone to do a job "as quickly as possible," they don't know what they need to do to meet expectations. How quick is quick? That's frustrating. Job costing provides a goal to attain, a schedule to meet, and a budget to beat. All of us need motivation. Anyone who says they are completely self-starting, and do not need anyone or anything to motivate them, does not truly understand themselves.
Job costing will confirm and document their high level of performance. Now, measuring performance is the very reason some field people do not like job costing. They feel that they do a good job, and that you should just accept that at face value. Again, let’s turn from those negative thoughts, and look to the positive view of why job costing needs to be implemented.

Tell the naysayers: "Yes, we think – as you think – that you are doing a good job. Job costing will prove to it. With job costing, your performance evaluation is not left up to someone's subjective point of view. Instead, your performance will be proven by unbiased facts."

This greatly benefits those who are good – as they all think they are – and will weed out those who are giving the good people a bad name and jeopardizing their job security.

It takes patience

Another reason job costing systems sometimes fail is that the contractor tries to do too much too fast. You cannot expect to have a fully operational job costing system in a month. If it is not working within 4 or 5 months, some contractors give it up believing it will never work with their people. Don't quit. It can take 6 months to a year to completely integrate job costing.

Some contractors end up putting so much pressure on their people about job costing that it becomes a point of tension. Then they get concerned they will lose good people if they continue to pursue job costing.

These problems can be avoided if, from the outset, everyone involved in management knows that it will take some time for the system to become operational. An old saying goes, “Good things come to those who wait.” The "good things" from job costing will come if management gently persists at it, and then waits patiently for it to take hold.

Ease into job costing

Another reason companies fail at job costing is they create too complicated a system. They often go into job costing before they even have a way to track who was on which jobs, and for how long.

On Day 1 they come out with 100 or more things their field people – who are brand new to job costing – must keep track of. As a result, they get a worthless mess of bogus figures from a frustrated and confused field.

Start slow and build people’s confidence before adding more complexity. A good first step is to ask your foremen to keep track of who is on what job, and for how long. Once they've mastered that, you can move to the next step. Now ask them to keep track of the time spent in 2 or 3 different work functions.

Let’s say that the job has a paver patio and driveway, a wall and a fireplace all being done in-house. Simply ask them to keep track of who worked in those areas, and for how long. Once they get a handle on doing that, ask for more details.

Again, it can take several months to get to the point where you are getting the detailed information you want. But, this is the best – and the least frustrating – way to get there.

Keeping it going

Getting job costing started is only half the battle. Keeping it going is the other half. Your field people must see some benefits of the recordkeeping from their standpoint. If job costing is done and they do not know that someone is looking it over and using it, they will feel that it is a waste of their time. If you do not make comments – good and bad – about the field’s performance based on job costing, then they will begin to wonder if keeping the records is worth their effort.

Also, you must resign yourself to the fact that in order to get good information you must become like a broken record. You must continually “get after” people. You must continually sell your people on the benefits of job costing. No system that involves people will work well long term without that kind of constant encouragement and motivation.

Job costing is the first step in monitoring and getting field performance, and acquiring good production hours to use in estimating. Get your system started now!

Since 1980, Vander Kooi & Associates has been helping business owners add more to the bottom line of their company’s financial performance. We would be proud to help you with budgeting, estimating, high-performance management, marketing, sales, productivity and field training. Visit vanderkooi.com or call (303) 697-6467.

Beginner's timecard

To get your people used to collecting job costing information I suggest you start with a simplified list of work functions like those below.

Function number	Description

101	Patio
102	Driveway
103	Wall
104	Fireplace

Cost accounting report