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Accounting Tips & Advice

How to Create a Job Cost Report Using Construction Budget Software

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.

Manage construction projects with the job dashboard in PremierJob 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.

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Tips & Advice

4 Ways to Improve your Budget Forecasting Process

Budget forecasting is a strategic and integral task within project management and control. At a high level, forecasting can be used to answer key questions like, “When will this project be complete, and how much will it cost?” This type of information is critical because without a well-calculated estimate of costs, a business may find itself without the cash necessary to complete a project or to pay workers.

 

Forecasting is also important for determining anticipated revenue because companies will want to know how much they stand to make before taking on a project. Additionally, an accurate forecast will provide insight into future cash flow, which is especially important in an industry where the funding for a new project may likely come from the revenue of a previous one. 

 

Creating a budget and financial forecast is no easy feat when there are always a number of variables that may impact a project—for example, weather conditions, change orders, or even a global pandemic causing shutdowns like we experienced this year.

 

So, what can you do to improve your budget forecasting? Consider these four tips:

1. Review Regularly & Update Accordingly

Anyone in the construction business will likely agree with the saying “the best laid plans often go awry” because no matter how carefully a project is planned, things can change and challenges may arise. It’s important to keep a pulse on a project’s status by revisiting forecasts regularly to determine whether or not the project is on-track. 

 

It’s also important to keep track of the initial forecasts and use them as a baseline for comparison, otherwise you won’t be able to effectively gauge project success and make the necessary updates to mitigate future losses.

 

When you create a budget forecast, it’s wise to set dates and calendar reminders to review the forecast and adjust the resource and budget allocations as necessary. Not only will this help gauge current status, it will help you create more precise future forecasts and reduce the likelihood of under- or overstating rates for future projects.

2. Factor in Direct & Indirect Costs

Project managers reviewing construction project plans

When you’re creating your budget forecast, it’s imperative to include both direct and indirect costs. Investopedia defines direct costs as “costs related to producing a good or service. A direct cost includes raw materials, labor, and expense or distribution costs associated with producing a product. The cost can easily be traced to a product, department, or project”, whereas indirect costs “are expenses unrelated to producing a good or service. An indirect cost cannot be easily traced to a product, department, activity, or project.”

 

Three common types of indirect costs are overhead costs (e.g., office equipment and supplies, insurance, salaries), equipment costs (e.g., depreciation, repairs and maintenance) and labor burdens (e.g., FICA taxes, Workers Compensation). Indirect costs can be difficult to calculate, but they need to be accounted for in a budget otherwise your forecasts will be inaccurate.

3. Use Hindsight of Historical Data 

As the saying goes, “hindsight is 20/20.” Use your company’s historical data to your advantage and to feed the precision of foresight. Reviewing historical data will help you identify previous pitfalls and to predict trends that are likely to happen again, all of which will help you plan better for the future to create more accurate budgets and forecasts. 

4.Utilize an All-in-One Software Solution

With so many factors and moving parts dependent on one another, it can be easy for project details to slip through the cracks. Adding to this, many construction companies are using multiple disjointed systems for their project management and accounting needs. Not only does this create bottlenecks in processes and waste valuable time, a disconnect between accounting and job costing means the data is unreliable and can’t be used to accurately gauge success or view up-to-date financial information. 

 

One of the easiest and most successful ways to improve your forecasting is to utilize an all-in-one cloud-based solution that allows you to access the information you need, wherever and whenever you need it. Premier Construction Software offers the most powerful construction software solution on the market to ensure you can effectively monitor and manage two of the most important functions—job costing and accounting. 

 

Our software brings the key business data together into a single platform, with seamless integration between all modules, and a single source of truth for reporting. Up-to-date financial reports are ready to go at any time, and can be tailored to your requirements. Premier also offers the ability to lock-in forecasts to ensure project managers are held accountable for their monthly forecasting. 

Final Thoughts

The power and usefulness of a forecast hinges on its accuracy—forecasting in and of itself isn’t enough to guide critical business decisions. Investing the time and resources required to improve your forecasting will contribute to more exact budgets which, in turn, will optimize cash flow and boost revenue. 

 

To learn more about Premier Construction Software’s forecasting capabilities, click here to schedule a personalized product tour.

 

 

Author Biography:

Kathryn Dressler is a content strategist with more than 10 years of experience across the spectrum of marketing services, including blogging, social media, public relations, copywriting and editorial services.

Categories
Tips & Advice Trends & Technology

5 Reasons You Should Invest in Construction Management Software

Largely driven by the ever-changing technological landscape, the construction is rapidly maturing and evolving. Like businesses across all industries, construction companies have come to rely on software and digital tools to perform everyday tasks and complete necessary job functions like communicating with team members, tracking expenses, submitting proposals and more. 

Still, many construction companies are unaware of what a comprehensive construction management software is, how it can benefit their business, and whether or not it’s a necessary expenditure.

In this blog, we’ll discuss five reasons it’s worth investing in construction management software. 

What is construction management software?

In a nutshell, construction management software is a set of project management tools used to improve and streamline the entire construction process, from planning to project completion. While there are software options that include project management features only, using an all-in-one construction software solution to manage your accounting and project management needs means the data used to drive key decisions is always in sync, up-to-date and reliable. 

What are the benefits of construction management software?

1. Improved Communication & Collaboration

Every project, regardless of industry, requires communication and collaboration to complete. Often times, communication barriers can lead to delays, misunderstandings and errors, all of which end up costing valuable time and money. Project management tools improve communication between team members and stakeholders by creating a central platform for real-time collaboration, brainstorming and problem solving. Providing a centralized place for team members to quickly access and communicate about vital project information leads to improved planning and faster execution.

2. Time & Resource Management

Being able to effectively gauge the required amount of time and resources needed to complete a project is critical for timely delivery and success. With construction management software, tasks required to complete every step of a project can be entered, assigned and updated easily. This allows project managers and team members to know what resources and equipment are required, and when, and allows for more accurate forecasting. 

3. Reliable Job Costing & Accounting

Having a constant pulse on project costs is essential to running a successful construction business. However, many companies use separate systems for accounting and projecting management that don’t communicate in real-time, which results in errors, inaccurate reports and untrustworthy data. An all-in-one software solution that ensures job costing and accounting data are synced means the information is current and reliable, and thereby allows informed decision making that reduces the likelihood of waste or over-budget issues. 

4. Document Sharing & Control

Because every step of a project requires some sort of documentation, construction companies have to deal with a lot of paperwork. A document management system provides a centralized place where critical information (like blueprints, wireframes and specifications) can be stored, managed, updated and accessed by those who need it. Construction documents are often complex and evolving, so having that information digitized, simplified and stored on the cloud saves time and reduces margin of error. 

5. Detailed Reports & Insights 

Construction management software records every phase in the construction process, and that data can be accessed at any time to analyze a project and to provide valuable insights that allow for informed decision making about next steps. Consolidated dashboards with various reporting options make it easy to digest and consume pertinent information, and provide the ability to drill down into the accounting information to view invoice or payment details, or to identify any red flags or pending approvals that may hinder project progress.

Is construction management software right for your business?

In this blog we’ve touched on five key benefits to using a construction management software and how it can help streamline processes, improve resource planning, enhance collaboration, and provide critical information needed to keep projects running on-time and at-cost—all of which ultimately lead to higher profitability.  

If you’re curious about Premier Construction Software but want to read reviews before contacting us, click here to learn more about us on GetApp.

Or, if you’d like to know how our all-in-one solution can be tailored to meet your business needs for maximum impact, click here to schedule a personalized product tour today. 

 

Author Biography:

Kathryn Dressler is a content strategist with more than 10 years of experience across the spectrum of marketing services, including blogging, social media, public relations, copywriting and editorial services.