How to do project costing? A guide for civil contractors

What is construction project job costing?

Job costing is project based accounting which tracks the costs and revenues of a specific project. Job costing is a systemised way to report the profitability on a project.  There are multiple different ways to perform job costing, such as retrospective monthly project costing or forecasting and using cost codes for real-time costing. In this article, we are going to focus on monthly job costing and how to do it.

Why is construction job costing important?

1. Track Project Progress: Job costing provides insights into project progress vs costs claimed to date, giving you the peace of mind to forecast the projects position.
2. Identify Profitability: It helps identify where money is made and lost, providing valuable feedback to the estimating team for continuous improvement.
3. Gives you the ability to make better decisions: By analysing job costs, contractors can identify opportunities to enhance operational efficiency and make better decisions.

The challenges with construction job costing?

The two common challenges with job costing for construction companies is:

1. Structure Data Collection: Capturing structured data from various cost sources to develop an accurate cost base is a common challenge.
2. Time Spent on Data Entry: Ensuring that the process doesn't burden site teams with excessive data entry while still providing valuable insights is another challenge.

What are the typical costs involved on a infrastructure project?

Infrastructure contractors typically have four main expense types:

• Overheads - These are the indirect costs of running a business (estimating department, insurances, office management team)
• Subcontractor Invoices - Works completed by external resources on a project
• Equipment and Yard Costs - The internal assets you directly use on a project
• Wages of Internal Site Team - This includes your project managers, site labourers and operators

How to perform project job costing?

In this case, we are going to dive into a simple retrospective monthly job costing analysis. Implementing a simple monthly job costing model involves minimal data entry at the site level. To perform a monthly job costing analysis, contractors need to cost each project against the following items:

1. Overheads

Depending on the structure of the organisation, a nominal rate of between 5-15% of total project cost is allocated across your projects, this can be applied in the accounting software

2. Subcontractor invoices

When accounts team receive invoices, job code them and import them into the ERP with correct monthly dates. There are tools that can do this for each ERP system. An example importing system for Xero ERP is https://www.hubdoc.com/

3. Equipment, workshop and yard costs

Capturing internal equipment and yard costs is challenging. It can be done many different ways, but one of the easier methods is to charge a day rate for a machine being used to a job. This can be calculated from your machines daily pre-start data using engine hours, or from a telematics system. Using this data, you can do # of days worked on a specific project x day rate to calculate cost per project

4. Wages of internal site team (PMs, operators and labourers)

Wages used on a specific project is best calculated from the way you do timesheets. You can use the same data from the payroll process to calculate your wages spent on a specific project. Using a digital timesheet system can automate the data entry component of this.

What about real-time job costing and cost codes?

The above monthly job costing method is good for retrospective, but it is an after the fact snapshot. Instead, contractors that want to understand their costs in real-time and forecast ahead can use cost codes against activities to figure out exactly where their money is going in real time. This is usually done via the daily site diary. In a separate article, we will dive into cost code job costing.

How can Nomadfleet help with construction project costing?

Job costing is a critical part of your company process and can be simplified to be a part of your day to day operations with streamlined data collection. Nomadfleet helps you streamline your data collection in two ways:

1. Utilisation tracking via pre-starts: Nomadfleet enables easy tracking of equipment costs through easy to use QR code pre-starts. We help you capture your equipment data with easy to use pre-starts. Using QR codes, operators are able to scan on and select project, This data is then exportable weekly / monthly, allowing you to apply day rates to the assets.
2. Digital site diaries: Utilising Nomadfleet's digital site diary software, contractors can set up lists and collect data faster in a more structured way. In a digital format, you can put your data to work by exporting it in real-time.
3. Timesheet software: Nomadfleet’s digital timesheet software enables you to streamline your timesheet process and use the real time information for both payroll and also your job costing process.
   

How to get started with construction project costing?

We have a network of CFOs and accountants that can help you set-up your accounting system for monthly costing. Reach out to will.smith@nomadfleet.com for a free introduction.

If you would like to drive efficiency with your job costing process, explore our timesheet, pre-starts and site diaries. Nomadfleet's modern software can help you automate the process and ensure accuracy. Click here to find out more.

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