Job shop costing is vital to the success and profitability of an organization. Without the ability to measure productivity; maintain profitable margins; identify your best processes; as well as track and categorize costs as they relate to materials and labor; your company cannot succeed in today’s competitive business environment. This is where job costing software comes in. From improving estimating and scheduling, to tracking the real-time progress of jobs, and providing better visibility in the areas of spending trends and overall profitability; job costing can provide success by allowing you to identify where money is made and lost throughout your business process.
However many business owners become overwhelmed at the prospect of implementing a new solution and therefore put off getting started. Fortunately, it is not as difficult as it seems – especially if you have some help along the way. That’s why we are providing our ‘Four Steps to Success’ to assist you in the process.
Step 1: Planning
When setting out on this new endeavor be sure to do the appropriate research before making any decisions. Know ahead of time what it is that you want to accomplish and have some specific goals in mind. This will not only increase the likelihood that you get the system you need, but will also allow you to measure your results later. Facilitate a discussion among your staff seeking to find out the following:
- What types of job costing is already accomplished by your accounting personnel, managers and employees?
- Are completed quantities recorded?
- Are any specific reports or information needed? And if so, what kinds of data must be made available?
- Who in your organization needs better reporting, and how will it help them improve your processes?
- Do you plan to estimate or budget all jobs?
- What is the current ‘per-job’ profit average?
- How much time can be allocated to categorizing costs and analyzing reports?
Additionally, you should be clear about the benefits provided by a job costing system, as well as how the budgets it will help you create are different from an estimate. While estimates take into account every possible cost involved in a project, a budget will instead be less detailed, and may group many of the smaller items together to allow your accounting staff to track purchases and payable invoices against anticipated costs.
Step 2: Focus on Key Requirements
- Ease of Use. If it’s too complicated you won’t get staff buy-in and the system will be useless to you. Furthermore, in order to be sure that you are getting accurate data and reporting, you should develop a plan for how information will be inputted and categorized both in the office and in the field. Categorizing costs appropriately is essential – so be sure to allow your staff the extra time they need to learn and record costs accurately in the beginning.
- Technology that meets your needs. A good system should provide:
- Integration Capabilities
- Specific Reports
- Job Cost Structure Flexibility
- Division of Labor and Burden
- And the ability to factor in everything, including overhead and expenses.
Step 3: Implementation
Once you’ve selected a system it’s time to try it out. But be sure to take it slow...starting with just one or two jobs will allow you to get used to the system and work out any unanticipated issues before deploying it across your organization. What’s more, be sure to provide the appropriate amounts of training for all of your employees. A quick ‘how to’ email is not likely to create enthusiasm, but rather spend time with them, detailing how it works and why it is an important new part of their process. Give examples and let them practice, ask questions and test their understanding. Sharing the benefits provided by the system will help you motivate them to learn more.
Step 4: Analyze, Reflect, and Improve!
While it can be tempting to skip this last and ongoing step – it is an important part of the process that shouldn’t be swept under the rug. If successful, your system should have provided:
- A useable cost structure;
- The ability to cost overhead;
- An efficient billing procedure;
- And access to appropriate reports.
However, be sure to look even deeper to determine your investment’s true value. Consider the following:
- Are you getting all of the information you need?
- Are all costs within your organization categorized appropriately?
- Are the reports provided by your system useful?
- Are you able to easily determine where you are spending the most money and cross-check those amounts with your original budgets?
Once you have a good idea of how your system is working for you, pull out your original list of goals and measure the results. Has the job costing system improved your business? If not you may want to do some extra research to find out why. Once you pinpoint possible issues you will be better poised to correct them, set new goals and give it another try.
Companies who do not implement and use some type of job costing system cannot grow and be profitable because they don’t have the information they need to identify and multiply successes, as well as avoid and reduce failures. If you’re thinking it’s time to improve your business and would like to be able to get a full 360-degree view of your project costing, give us a call. We’d be happy to discuss some options with you.