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The importance of labor tracking and job costing in construction
One in 4 construction businesses is at risk of closure due to inaccurate job costing. Here’s how TSheets and QuickBooks can save the day.
While keeping projects on time and under budget is essential, it can be incredibly difficult for businesses to know the true health of a project. Consolidating and interpreting job data can be a complex and time-consuming process.
Industries that deal in long-term or custom projects face higher risks to their overall profitability because creating accurate estimates for jobs with unknown variables can be tough. A construction company, for example, can learn from short, common projects faster because they are performed regularly. More detailed, multi-year projects are riskier. If the company gets one of these longer projects or a project they haven’t already completed several times, it’s more difficult to create an accurate estimate.
To explore the common challenges construction companies are up against and uncover the repercussions of getting job costing wrong, it helps to put the situation in context.
Time tracking and labor tracking
Job costing can mean different things to different companies and industries. And as the makers of a time tracking and scheduling solution, TSheets is especially interested in how understanding the cost of labor can make construction companies more profitable.
That’s why QuickBooks and TSheets surveyed more than 600 construction business owners and finance experts in the U.S.* The results illustrated job costing challenges in the construction industry specifically, and found that 1 in 4 construction companies would go out of business if they made just two or three inaccurate estimates. It also found that labor is the No. 1 most expensive project cost and the hardest to estimate.
For more on how to time tracking and accounting go hand-in-hand for more accurate job costing, TSheets caught up with accountant and QuickBooks consultant Hector Garcia to discuss this very subject and determine how businesses using TSheets and QuickBooks can benefit from better labor costing tactics.
In QuickBooks, after you track and enter all of your project data like labor costs, overhead, and materials, you can access a report in QuickBooks. “You’re going to see, estimated cost is obviously a much simpler version of that report,” Garcia said. “Estimate versus actual cost lets you know exactly where you are in terms of what you thought you were going to spend versus how much you’re actually going to spend.”
Since time tracking is such a huge piece of job costing, it’s important that every employee, contractor, and subcontractor keeps track of their hours to easily transfer them over to QuickBooks. From there, you can jump into job costing with QuickBooks.
How job costing affects bids on future jobs
Job costing expert Penny Lane wrote about the value of job costing for keeping projects profitable. “Job costing and profitability tracking can be a powerful tool when it comes to managing things like job cost overruns,” she said. “And it can help you reflect when it comes to bidding on and accepting future jobs.”
Lane illustrated a few examples of how this would play out in a real work situation. “A building contractor might notice framing labor costs are already at 50 percent of the budget, but the framing is only 30 percent complete.” Then, she explained, would be the time to mitigate the cost overage.
Similarly, an architect can refer back to the last project to anticipate the time needed to complete a similar project with confidence. By taking a data-backed approach to upcoming projects, businesses in all kinds of industries can better manage costs.
Mastering job costing allows companies to create more accurate estimates and reduce the possibility of unrealistic profit margins. Job costing also means businesses aren’t performing guesswork and are instead generating accurate estimates on time. With labor costing in real time, you can see whether your project is on track and on budget before it’s too late.
*Methodology: QuickBooks Payroll commissioned Pollfish to survey 666 construction managers/payroll experts (age 18+) from businesses throughout the U.S. The sample was selected by Pollfish. QuickBooks Payroll welcomes the re-use of this data under the terms of the Creative Commons Attribution License 4.0, which permits unrestricted use, distribution, and reproduction in any medium, provided the original source/data is cited with attribution to https://quickbooks.intuit.com/industry/construction/.
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