Estimating Bidding JobsJob Costing:

INFORMATION FOR ACCOUNTABILITY

Why Job Costing is Critical ?

• Provides the most current information about your company.

• Provides information for managers, not accountants.

• Provides information that can be used as a management tool, for change.

• Holds all employees accountable.

• Reconnects the project process.

EstimatingSystem

ProvidesProductionInformation

(LMES)

Field Collection

Of Production Info.

Job CostSystem

Job CostReports

Review with Production /

Sales

Review HistoryWith

Estimator

JOB COST CYCLE

• Man-hours:

– Sample Bid:

• 20 Companies

• Used cost based estimating method

• Same Material Cost.

• Difference Labor Hours and OH Recovery

– Paver Patio, Wall & Plants:

• Price High: $39,163.84

• Price Low: $15,358.00

• Man-hours High: 432 MH

• Man-hours Low: 145 MH

Job Costing

BidVs.

Actual

MaterialAP

OHRecovered

Profit

Subcontractor

Equipment

LaborPayroll

Warning:

• The more information not reported, the more profitable the job is.

• Labor hours are double checked against payroll hours – Your employees will let you know if they are short hours.

• Materials are double checked against invoices, delivery tickets, statements, and inventory sheets.

• Supervisors are key to double checking the work dailies and enforcement.

• The underperforming employees will resist.• Conduct JC and share both good and bad

projects.

Asphalt Crew Performance

• Non billable repair of poor quality installation.

• Installed 900 sq.ft of asphalt.

• 16 men.

• 8 Trucks

• Arrive @ 8:00am

• Depart @ 5:00pm (136 MH)

• Asphalt arrived @ 4:00pm (Prep: 120 MH)

• Production Rate: 6.6 sq.ft. / Man hour

Work daily completion.

Labor

• The only method I have found to ensure accurate and complete work daily information is to combine job costing and payroll information.

• The foremen would fill out the work daily for the entire crew.

• The information is then used both for payroll and job costing.

• If the crew is working on multiple projects, a different work daily is used for each project.

• If a crew visits multiple sites every day, such as a mowing crew, a different work daily format is used.

• Most work daily formats have a time card table. This is used to mark down the start and end times for each person on the crew.

• Any hours not paid, such as lunch, are deducted from the total.

• For example:

– An employee starting at 7 a.m. and finishing at 5 p.m. with a 30 minute lunch deduction would list 9 1/2 hours.

• The man hours are entered by operation code.

• Adding up each employee’s time for each operation code would be the number of man-hours worked for the day.

• These hours are exactly the same as payroll. Your employees become the best double check system for the accuracy of this information.

• The information listed for each employee is then compared to the timecard section on the work daily.

• These hours must match.

• The work daily must be completed each day.

• There is no way to know if the work daily is being completed each day unless it is handed in each day.

• Do not let the foreman keep the work dailies until the payroll period ends or the project is completed.

• The work daily should then be handed to a person with knowledge of the project for review.

• This is usually the salesman or supervisor.

• The work daily review should take place prior to the work daily being handed into the office.

• The data entry person would have no knowledge or ability to validate the information.

• I would recommend the foreman complete the morning's activity at lunchtime.

• The afternoon’s activities would be recorded while the crew is cleaning up.

• The completion of the work daily should take no more than 10 minutes.

• The work daily must be completed at the project site.

• The accuracy and completeness of the information will decline significantly if the work daily is completed at a later time off site.

Foreman WD System

InventorySheet

Work Daily

ReceiptsFor

Purchases

SuperviorVerification

DataEntry

Paperwork

InventoryAdjustment

Report

Job Costing

Payrol ReportPosting

Human Resource

Verification

Payrol Report

EmployeeVerification

Purchase OrderReport

Issue vendor

Payment

Physical Count

Verification

AccountsPayable

Department

InventoryDepartment

JobDetail

TransactionReport

Job Profit& LossReportIssue

Pay Check

Foreman Paper Trail

7:007:00

7:00 4:004:004:00

-30min-30min

-30min8.58.5

8.5

5 6 61 1 12 1 1

0.5 0.5 0.5

9516

11

Job Cost reports• Division.

• Non Billable versus Billable Field hours.

• Project Profit

• Bid vs Actual

– By Supervisor.

– By Estimator.

– By Salesperson.

– By Foreman.

• Residential versus Commercial.

• Work area type.

• Subcontract versus In-House.

• Actual Equipment use

Employee Hours Report

Job Costing Determines:• Most profitable job size range• Smallest / Largest project size• Crew size efficiency• Crew / Foreman strength & weakness• In-house vs. Subcontract• Project type by profit• Lead source by profit• Verify equipment efficiency• Customer type• Long-distance versus local projects• Information for T&M Billing• Your “Sweet Spot”

What is your “sweet spot”?

• High end residential:– Project size $50,000 - $100,000.

– 30 minutes from Shop

– Design / Build

– Referred lead

– Referral potential

– Hardscape and softscape

– 1 month lead time

– Uncompromised quality and material selection

– 20% profit

• Provides metrics for prequalification.

• Must meet 6 out of 9 Criteria.

Non Billable Hours

• What is your % of non billable hours

• Set up items as projects

• Track OH items to measure time for:– Equipment

– Facility

– Inventory

– Meetings, Training, & Education

– Punch-list & Repairs

– Warranty not estimated

Lead Qualification

Qualification approval score varies based on Sales pipeline and Project backlogFor example: Spring: > 70Summer: > 50Winter: >30

Bonus System

• Bonus pool should be based on corporate and divisional profits

• Bonus should include all key employees

• The method for determining the bonus should be communicated to all affected employees

• The bonus system should be consistent throughout the company

• A portion of the bonus should be issued based on projected profits, each quarter

• The majority of the bonus should be issued at the end of each fiscal year.

Measurement factors for the bonus• Project or divisional profit

• Customer satisfaction

• Customer retention

• Safety

• Attitude

• Tardiness

• Equipment

• Paperwork

• Specific job functions: AR collection days, Inventory loss, Sales volume, New leads etc.

• Improvement in certain areas of performance

• Personal improvement

• Additional Skills, Certifications, Education

Calculation of Bonus Amount

Item Grade Comments

Project Profit (x2) 8 Average Job 22%

Safety 10 No injuries this year. Attended all seminars

Tardiness 6 Late 7 times

Attitude 8 Overall better: Work on improving comm. With office

Equipment 6 Preventative maintenance behind schedule

Customer satisfaction 9 Excellent Rating on 78% of CS

Paperwork 7 WD info not accurate

Crew management 9 Improved performance

Obtain CLT Certification 10 Great Job

Total 81

Evaluation for Joe Jones Year:2004

Name Score

Joe Jones 81

Henry Dundee 66

Mark Grouser 58

Debbie Canter 88

Tom Smith 36

Juan Vessa 55

TOTAL: 384

Name % of Total

Joe Jones 21

Henry Dundee 17

Mark Grouser 15

Debbie Canter 23

Tom Smith 9

Juan Vessa 14

• Corporate Bonus Pool : $10,000

• Joe Jones receives 21%

=$2100.00

The corporate bonus pool is based on overall company profits.

This bonus pool may also be based on divisional profits

• Provides information to back up gut feeling.

• Allows for verification of improvement during changes.

• If you have employees you do not directly manage, job costing is critical.

• Provides accurate feedback on what you do not see.

• Analyze data over time to determine trends.

• Should be used to form the basis for performance based compensation.

• Job costing becomes your company’s scorecard.

•“It is not necessary to change. Survival is not mandatory.”

(W. Edwards Deming, Management Guru)