As anyone in the construction industry will tell you, if you don’t have a good handle on the costs of your project, your chances of a smooth and profitable project can begin to diminish.
Here we take you through our step-by-step guide to tracking your construction costs – the good, the bad, and the change orders.
1. Use good estimating tools.
There are some excellent estimating software options available today. A solid estimating tool can make the difference between an accurate budget and one that is either completely overblown or severely understated.
2. Create an accurate budget – and understand your costs.
When bidding for a job, make sure that you are using the best, most accurate budget. Understand the costs involved in your materials – and always try to get the best price. Without an accurate budget it’s impossible to understand if you are actually over on costs, or if your budget is too small. Spend the extra time fine-tuning your budget upfront. It’s well worth it.
3. Understand your labor costs, specifically.
Labor can be one of the biggest costs of a construction project. For subcontractors, it is the largest cost. Payroll can be difficult to manage, especially if it’s outsourced. Use an outsourced provider who specializes in construction accounting and payroll, and make sure that they provide job costing information that can easily be transferred to your accounting software.
4. Add your budget to your construction software tool.
Without a budget to track against, you’ll have no idea if your job is going well, if you are spending too much money, or if something has gone wrong. When you have no budget – or if your budget hasn’t been uploaded to your software – you can’t take action to rectify a problem… because you might not even understand what the problem is.
5. Use simple but descriptive cost codes.
Avoid any cost codes that are too detailed or complicated, or the people working in the field will never use them. Cost codes should be useful and simple. You want your cost codes to fit the needs of your business, but they should never be so complicated or confusing that those in the field don’t want (or can’t understand how) to use them. Simple cost codes – and their consistent usage – has the added benefit of providing valuable information for bidding on future projects.
6. Provide accurate and timely information to the field.
Getting accurate information to and from the field can be a challenge, but giving them access to the information they need to manage their projects is pivotal. Also – a delay in getting costing information into the software won’t help anyone. Timely information allows them to adjust the project if and when needed.
7. Provide timely information to your operations team.
Your operations team needs an accurate and timely job costing report. This will allow them to take action to mitigate or minimize any profit loss they see early enough to make a difference in the job.
8. Manage your change orders – closely.
There have always been — and there will always be — change orders on every construction job. You need to make sure that you collect on every change order, so you recoup any costs. It is imperative that you track your change orders and collect payment before the end of the job. Once a job is over, it is more difficult to collect payment, and your client is more likely to try to negotiate the cost.
9. Understand your labor productivity.
You should conduct a labor productivity analysis for each job. This will not only allow you to understand where you might need to add more workers, but it will also be tremendously helpful as you go to bid, budget, and plan for future jobs. Labor can often be one of the largest line items on a construction budget, and you need to ensure that you understand what’s working, what’s not working, and what you need to do to fix it.
Tracking construction costs is a crucial part of a successful and profitable construction project, but it doesn’t have to be difficult. Follow these steps and recommendations for a seamless way to track costs and understand your profitability.