Construction projects are complex. Getting accurate job cost information can be difficult if you’re not tracking costs and revenue in an organized manner. Trying to track budgets on multiple projects using spreadsheets and generic accounting programs simply doesn’t work. Financial Construction Software is a must-have for any organization that wants to be in financial control of their jobs and overall business.
The most challenging part of any system is to make sure the foundation is set up properly from the start. Project budgets must be broken down into cost items and cost types. Commitments are posted against these codes to help provide an accurate picture of what is remaining on the budget. Any deviations from this should be tracked via a change order so you can have an accurate picture of where a project stands, where it will finish, and analyze the month over month variance. If the job cost data is entered properly, it is easy for the accounting team to match the commitment and identify any red flags. This way businesses can rely on the job cost reports and there is less risk that you are caught with surprises at the end of the job. Having the information in real-time makes it easy to drill down to view the information and make more informed decisions, faster.
Setting up job cost accounting software
Setting up a job costing system isn’t complex if you have the right software, but it does require some planning. Here are some recommendations to help you better track your job costs using proper financial construction software.
Break down the job estimate into cost items and cost types. These codes represent specific types of work or areas on each project. Most companies use Excel to build out their job estimate as it can be very sophisticated with specific calculations. Other companies leverage 3rd party bidding/estimating packages specific to their industry. Premier Software provides up to five levels of job cost breakdown so you can track costs by the job number, cost types, cost items, and an additional 4th and 5th level of breakdown which are completely configurable to track further breakdown by buildings, units, lots, areas, custom levels etc. You can also group the cost items by CSI division codes.
Enter the job estimate into your financial construction software. In basic accounting systems, most users have to manually rekey the job estimate into their accounting system which can be very time-consuming. In most Construction Financial software solutions, you can upload the job estimate from excel or any 3rd party in just seconds. In Premier, you can do just that so you save valuable time.
Once uploaded, you can lock the original estimate so if anyone applies changes, they are properly tracked via change orders. This gives project managers better visibility into the variances and holds project managers accountable to their original estimate. Cost types are available on the job cost reporting but they are typically connected to your financials to the COGS or WIP accounts. This way business owners can get a macro view on how the company is performing across the jobs. Examples of cost types include Labor, Material, Subcontract, Equipment, Hard Costs, Soft Costs, Marketing, Other. Whereas, the cost items do not roll up to the financials. These are the phases of the job that typically provide the detailed job cost breakdown to help project managers assess the performance of the job. Examples include Electrical, Foundation, Demolition etc. These are typically sorted and grouped by CSI Division codes which are helpful when running summarized reports.
Enter commitments. Commitments are typically used to track labor hours, subcontractor agreements, and/or purchase orders for all material purchases. These should be entered into the accounting system as they are issued so it’s easy for a project manager to see what is remaining in the budget. You can set alerts or hard stops if a commitment is exceeding the budget or if a user is allocating incorrectly.
In Premier, you can automate the generation of these commitments to help save valuable time and ensure proper allocation.
Track change orders in the system. Both owner change orders and internal changes need to be entered into the system to properly track job costs. Change orders are used to track requested or required changes to a job that were unanticipated at the start of a job. It is imperative to track change orders since they often have a financial impact to either the company running the job, the customer, or the subcontractor that is working on the job. Budget Transfers are an auditable way to move funds between cost items on a project. They’re often used to allocate to and from the contingency and balance the allocation of budget when one part of the project is performing better than another.
Allocate actual costs to the job. Accounts payable, GL entries and payroll costs should be allocated to the proper job cost on a timely basis so project managers compare it against the budgeted cost of those activities, so that the cost variance from budget is known continuously. … especially valuable if the organization performs many projects that are very similar to each other. Payroll costs should include burden, such as employer taxes, benefits, and employer-paid insurance.
Running job cost reports
Once the project has been set up, the job budget is entered, commitments are posted, change orders are updated, and actual costs are posted, the estimate at completion should be accurate and you can rely on the job cost reports. Premier Software has several out-of-the-box reports and project dashboard that consolidate accounting and job costing information which make it easy to see where you stand on the job, help you identify red flags, and make it easy to drill down into the details.
Project dashboard. The project dashboard provides project managers and executives a high-level overview of each project and drill down into any job cost or accounting details in just seconds. It provides useful KPIs to help identify the original vs. forecasted margins, overbudget items, overpaid vendors, WIP, cashflow, retainage, and AR & AP information. Also, a PM can easily create or view submittals, RFIs, meeting minutes, daily job logs, and unbilled change orders. Take action to approve, view, or electronically sign pending subcontracts, change orders, AP invoices, AR billing, and more.
Job Cost Progress views – This report provides a detailed or summary view of the job providing a full breakdown of the costs and revenue. View the original estimate, commitments, remaining budget, actual costs, monthly costs, % complete, estimate at completion. With multiple filters available, project managers can easily filter by cost item, cost type, cost groups, and more. Easily evaluate project managers and hold them accountable to key KPIs.
Work in progress report. The WIP report shows businesses whether active jobs are overbilled or underbilled. Cost overruns are common in the industry. It’s far too easy at the mid-point of any project to misjudge billing against the actual status of the project. The success of a WIP report depends on keeping accurate cost records and consistent documentation.
Forecasting reports. Project managers should forecast monthly and review M2M variances. A forecast can be considered a precursor to a Potential Change Order. Unlike a change order, however, a forecast is a well-informed prediction of trends that are arising that need to be identified and captured prior to a change order. Any predicted trends that turn out to be true, can then be converted into a change order and become part of the project budget & schedule. Premier helps by allowing PMs to enter in anticipated costs. The anticipated cost value impacts the estimate at completion providing a more accurate picture of where they will end on each line item.
Premier Construction Software makes accurate job cost reports easy
Using financial construction software for accounting, job costing, project and drawing management makes project managers’ jobs easier. It automates the most time consuming and complex processes so they can focus on what matters. Trying to track and report on this data by hand is difficult and time-consuming. Premier Construction Software helps project teams know their profitability and see potential issues quickly and easily.