Job-Costing procedure for Construction

- "I just think Job-costing softwares or ERP softwares will never fit every custommer, customers have specific requirements for their system, their projects."

• Agree, customers as well as client shall be free to choose, even for the same job different customers and clients will have their particular needs.

- "So only them with their IT guys can build it by themselve perfectly, called inhouse software...or if having a very very flexible software."

• Do not fully agree as I have seen a few excellent Job-costing software in the past. Just a few, rare but still available. Unfortunately the tendency by some software developers have been to obviate the unit-costing in favor of mere budgeting. I have seen such bad performance on software specific for the Construction Business, something that seem unbelievable to me. They do not care about what contractors have been doing for decades, they don't care about the common language of their industry, they cannot see the difference between mere budgeting and unit costing. Budgeting might look similar to unit costing but falls short of the need of most construction contractors.  
• When your accounting/financial system does not provides for unit costing and this is what you really need I fully agree you shall look for customizing your system, if it allows customization. In some instances this might be your best option, for large enterprises I do favor such approach over canned products.

Agree. 

Usually Unit/Job-Costing software provides for entering data by using a prefix to identify the job, then a few characters to identify the cost code and finally a suffix to identify the cost type.

In this way you can segregate reports by job. Then within jobs the software will provide a detailed cost report grouped per every cost account  with several columns for each cost type [L/E/M/S/O] and a column that adds all cost types for every cost account.

Each software have their own reports the relevant issue is that quantities are reported and not only costs or percentages.

Seems like you got the idea about coding. 

Think also in terms of applying the codes, it is easy to apply different cost codes for labor in case of forms. On the time card the supervisor will write the appropriate descriptions such as column forms and wall forms but for materials it is difficult, when you buy lumber and nails it might be for wall forms as well as for column forms. 

About the forms the labor unit cost for columns is substantially higher than the unit cost for elevated slab, same goes for walls. Also the quantities of each are different even if the unit of measure is the same [in case of forms we use contact area].  

But for cost control we also have to look for accountability, if you mix costs whose responsibility is spread under different supervisors the system will not help. We usually have different crews and supervisors for installation of walls, columns and elevated slabs. So when we design our coding system we consider in which way the breakdown will be of value not only for estimating but equally important, for field management.

For some equipment at times it is different, a crane might be used for walls as well as columns but distributing operator and equipment might be difficult. In such case it is more practical to keep the equipment under a single separate cost code. 

Do not overlook the idea about the cost types usually subdivided in labor, equipment, materials, subcontracts, other. By keeping them separate it is easier to interpret actual unit costs. Maybe you already bought 90% of the form wood but only have installed 20% of it. 

For subcontracts we allocate units for each unit price item if a unit price subcontract, for others such as Air Conditioning we use quantity 1 unit LS but in the description use some measure such as Tons or BTU.

Most job costing software provides for a percentage allocation of labor burden, learn about it. If you are loosing money on installation it is not only on direct labor cost but also on labor burden where you are also loosing money. If you apply labor burden individually the variance will make sense if you apply it to a single account it will not tell you about the distribution. 

Our labor burden usually includes the employer contribution to Social Security and Medicare, vacations, sick-leave, workmen compensation insurance, medical insurance, union fees and any other contribution by the employer directly related to labor costs. Some keep workmen compensation under separate code as it might be substantially different for different job risks. 

An ISO Standard shall be available soon.

http://www.iso.org/iso/home/store/catalogue_tc/catalogue_detail.htm?csnumber=63708

Meanwhile I suggest using the brakdown used by your estimators, summarized to a reasonable level. Then check on those cost components that for practical reasons shall be grouped on a single cost account. For example we keep track of form materials using a single cost account but for inatallation we use specific cost accounts such as installation of Column Forms, installation of Wall Forms ... Some use similar approach for Concrete materials and even keep a songle account for concrete pouring. There are no rules but common sense and experience. 

No matter if creating your own cost accounts or if using a standard as a reference I suggest to keep it within practical limist, too much detail can be as bad as too little. Therefore you shall adjust the chart of account to fit your needs.

If you create a draft of your accounts maybe we can make our suggestions, as long as you do not disclose costs it will not be confidential data in any way.

Suggest the following Structure:

• DIVISION: General Title of a Group of cost accounts.
• COST ACCOUNTS UNDER EACH DIVISION : consider disclosing cost types thar will be used such as Labor, Equipment, Materials, Subcontracts, Other. In this way the perso(s) making the distributions will look for other possible cost accounts when the cost type is not available.  

Discuss the cost accounts with the estimators but always keep the details under control. And once again, do not overdo it, some industry standards are too detailed for use in cost control systems, perhaps good to organize cost references, drawings and specifications. I would target for something between 50 to 100 cost accounts to cover all my jobs and coding easy to remember. Perhap 3 first digits for Job ID, then 3 digits for the code and suffix letters for the type [L/E/M/S/O].

We use the CSI coding that is geared for specifications not for cost. Still our cost books such as RS Means do follow CSI organization in some way, they go into very detailed codes but we never use such codes, too detailed for practical use in job costing. 

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The following references can provide an introduction to our discussion.

http://www.foundationsoft.com/resources/articles/77-unit-cost-and-production-reporting.htm

• Here we will find arguments of why production/productivity is best controlled when you take into consideration actual production units and costs per unit instead of just costs without relating them to production units. 

http://www.nflaace.org/index_files/john_orr_cost_loaded_schedule_updating_pdf.pdf

• Here we will find the issues associated with the use of CPM schedules as a Billing tool.

As we discuss how the selection af your cost codes is critical to the success of the system we will discuss why cost codes shall not be forced to match the breakdown for Billings nor the Activities and/or WBS Breakdown of your CPM.

For a start you shall track separately labor from materials and equipment costs but you do not bill separately labor and material but use a single number that includes costs and markup. You shall keep a uniform cost coding system on all jobs but the work breakdown of individual jobs might require different WBS structures, or different clients might require their preferred structure.