Project opportunities are plentiful. Your construction crews are busy, backlog is growing and margins are strong. It’s as if everything is working in your favor. But what happens when the once-buoyant economy starts to sink?
The supply chain is only as strong as its weakest link. If something occurs that causes disruption along any point of that chain, the ripples are bound to affect the construction industry. Appropriate monitoring of both the volume and timing of future work is always a smart practice to employ. Construction job costing is a vital tool to identify issues as well as opportunities to focus and direct organizational strategy.
Job costing is a critical tool for many contractors and can serve as a report card for completed and uncompleted contracts as well as a guidepost for future work. Effective job costing can identify indicators of financial stress and help organizations shape a plan to overcome these challenges.
To be effective, job cost information must be timely, accurate and understood by all employees in a position to influence those costs.
Increase construction productivity and profitability with Salesforce
Construction job costing is important for the financial health of contractors, but when the supply chain faces disruption and uncertainty, with shipping costs soaring, it’s vital.
When the construction industry confronts soaring prices for materials, due to increasing demand and massive breaks in the supply chain, many projects come to a standstill. Supply chain disruption leads to inflated cost of materials due to shipping difficulty and halted manufacturing of products and materials — all of which affect your company’s bottom line, not to mention potential damage to your reputation.
During a time of supply chain chaos, having accurate insight and data regarding job costs is absolutely critical. Successful contractors employ robust job costing processes in order to focus their efforts and direct strategic initiatives.
Ensure you are seeking the right projects for your construction business. Razor thin margins leave little room for errors or inefficiencies. Assuming appropriate job costing processes have been applied to current and previous contracts, the resulting data can be analyzed to determine profitability trends.
The answers to these questions should drive bidding efforts; however, without appropriate job costing data, errant conclusions can occur, leading you down an undesirable path.
Once you’ve focused on the projects most likely to be profitable, adequate job cost information can aid in the development of bids. While market factors must also be considered, the availability of accurate and timely job cost information will result in your ability to hedge against unfavorable surprises when it comes time to perform on the contract.
It’s important to note, however, that simply bidding based on estimated total job costs isn’t always an appropriate response. Depending on the circumstance, it may be advantageous to bid a contract at an overall loss to keep crews busy and provide marginal profits to cover overhead costs.
The ability to price change orders can make or break a project. Understanding the marginal costs associated with a proposed change can shape your ability to price the additional work appropriately and avoid accepting a change order when doing so would unfavorably affect contract performance and profitability.
Change is often unavoidable: Certain projects get delayed or cancelled and others get modified. If the effect of these changes on project profitability are understood by all affected parties, you can seek to minimize the negative impacts and pursue the best overall outcomes.
As a business leader, ensuring your involvement in the construction job costing process, requires just a few simple steps:
Better manage your construction job costing with the guidance from our experienced construction industry advisors.