Construction companies need to be vigilant in tracking their costs to ensure the profitability of each project. One way to achieve this is through job costing, which involves tracking the expenses associated with each job to determine its total cost. Job costing allows construction companies to identify areas where costs can be reduced and revenue can be increased. To effectively implement job costing, construction companies must track various metrics related to labor, materials, overhead, and project management. In this article, we will explore 10 essential metrics to track with job costing in construction companies.
1. Direct materials cost is an essential metric to track in job costing for construction companies
Direct materials cost is an essential metric to track in job costing for construction companies. It includes the cost of all materials that are used exclusively for a specific job, such as concrete, steel, timber, and other building materials. Tracking this metric can help construction companies identify and monitor the cost of materials used for a particular job, allowing them to make informed decisions on future projects and budget allocation. By closely monitoring direct materials cost, construction companies can ensure that they are not overspending on materials or wasting resources, leading to improved profitability and project success.
2. Direct labor cost is a crucial aspect that construction companies using job costing should keep track of
As one of the 10 metrics to track with job costing in construction companies, direct labor cost is a crucial factor in project budgeting and decision-making. This metric encompasses the total wages and salaries paid to employees working directly on a project, including both skilled and unskilled labor, as well as employee benefits.
By tracking direct labor costs, construction companies can gain valuable insights into the true cost of each project. This information can be used to estimate future labor costs more accurately, make informed decisions about which projects to pursue, and identify areas where labor costs can be reduced. For example, if a construction company notices that a particular project consistently incurs high direct labor costs, they may choose to adjust the project's scope or staffing to reduce labor costs and increase profitability.
3. Overhead cost is an important metric to track for construction companies using job costing
Overhead cost is an important metric to track for construction companies using job costing because it can significantly impact the profitability of a project. Unlike direct materials and labor costs, overhead costs are not directly tied to a particular job but are necessary for the overall operation of the business. Examples of overhead costs in construction firms include rent or mortgage payments for the office or warehouse space, utilities such as electricity and water, insurance premiums, accounting and legal fees, and office supplies.
Tracking overhead costs can help construction firms determine the true cost of a job and ensure that they are charging enough to cover all expenses, including indirect ones. It also helps firms identify areas where they may be overspending or where they can cut costs to improve profitability. By allocating overhead costs to each job, construction firms can make more informed decisions about which jobs to take on and how to price their services.
4. Total job cost is a critical metric to track with job costing for construction companies
Total job cost is a critical metric to track for construction companies using job costing, as it provides an accurate picture of how much a specific project costs the company. It includes the cost of all direct and indirect expenses incurred during the project, such as materials, labor, equipment, and overhead costs. Accurately tracking total job cost helps construction companies to determine the profitability of a project, identify areas where costs can be reduced, and make informed decisions on future projects. By monitoring total job cost regularly, construction firms can ensure that they are staying within budget and maximizing their profits.
5. The Importance of Job Costing in Tracking Job Profitability for Construction Companies
Job profitability is a crucial metric for construction companies to track with job costing as it directly affects their financial health. To calculate job profitability, the total revenue generated by a particular job is compared to the total cost of the job. If the revenue is greater than the cost, the job is considered profitable, and if the cost is greater than the revenue, the job resulted in a loss. By tracking job profitability, construction companies can identify which jobs are most profitable and adjust their business strategies accordingly. For example, if a particular type of project consistently results in losses, the company may choose to avoid those projects in the future or adjust their pricing and cost structures to improve profitability.
6. Tracking Labor Productivity Through Job Costing: An Essential Metric for Construction Companies
Labor productivity is an essential metric to track in construction companies with job costing because it provides insights into the efficiency of individual workers. By measuring the amount of work completed by each worker on a job, companies can identify areas where productivity can be improved. This metric helps companies understand how effectively workers are using their time and resources to complete tasks and can be used to optimise work processes and ensure that workers are being utilised effectively. By tracking labor productivity, companies can identify areas where workers may require additional training or support, and take steps to increase efficiency and improve performance. Ultimately, improving labor productivity can lead to cost savings and better project outcomes.
7. Tracking Material Waste through Job Costing: An Essential Metric for Construction Companies
Material waste is an important metric to track in construction companies using job costing as it helps identify areas where efficiency can be improved. Material waste can occur due to various factors, such as poor planning, inaccurate measurements, or improper storage of materials. By tracking the amount of material wasted on a job, firms can analyse the causes of waste and take steps to prevent it in the future. This can lead to significant cost savings and increased profitability over time. Additionally, reducing material waste is also environmentally responsible, as it minimizes the amount of material that ends up in landfills.
8. Tracking Change Orders as a Metric of Job Costing and Profitability in Construction Companies
As one of the 10 metrics to track with job costing in construction companies, change orders refer to modifications or additions to the original scope of work in a construction project that were not included in the initial contract. Tracking change orders is important because they can significantly impact project costs and timelines.
By tracking the number and cost of change orders, construction companies can identify areas where communication and planning can be improved to avoid such modifications in future projects. This metric can also provide insights into whether the project manager and team are accurately scoping and pricing the project, and whether the customer is satisfied with the work being done. Tracking change orders can ultimately help construction companies minimise project risks and increase profitability.
9. Schedule performance is a critical metric for construction companies using job costing
Schedule performance is a critical metric for construction companies using job costing. It helps track whether the project is running behind or ahead of schedule and whether the deadline is achievable.
By tracking schedule performance, companies can identify potential delays and take corrective action to ensure that the project is completed on time. This metric can also be used to monitor the performance of individual workers or teams, helping firms to identify areas where productivity can be improved. Accurate tracking of schedule performance can also help companies to build more accurate estimates and improve their bidding process in the future.
10. Tracking Safety Incidents as a Job Costing Metric in Construction Companies
Safety incidents is an important metric to track in construction companies as it ensures the safety of employees and reduces the risk of costly accidents. This metric tracks the number and severity of safety incidents on a job, including near-misses and actual incidents that resulted in injury or property damage.
Monitoring safety incidents enables companies to identify areas that need improvement in their safety protocols and implement corrective measures to avoid similar incidents in the future. Apart from this, keeping a record of safety incidents can help companies to obtain lower insurance premiums as insurance providers typically offer discounts to companies with excellent safety records.
In conclusion, tracking the right metrics is crucial for the success of any construction project. With Job Costing Software, construction companies can keep an eye on ten essential metrics, including labour cost, material cost, and equipment cost, among others. By tracking these metrics, companies can make data-driven decisions and improve their bottom line.
Additionally, the software helps in project planning, estimating, and scheduling, ensuring that the project is completed on time and within budget. Therefore, implementing Job Costing Software can bring significant benefits to construction companies, improving their efficiency, productivity, and profitability.
