Knowing that an accounting system is only as good as the information you can get out of it, structuring your Job Cost system can be critical to getting meaningful reports. The primary purpose for having an integrated system is to empower project managers and the management team to make the organization more efficient and profitable. Following are a few things to consider.
What Job Cost Information Do I Need?
It is always a good idea to begin with the end in mind by defining what kind of job cost reports are needed from the system. Using these reporting requirements as a guide will define how the job cost information needs to be captured, and how much detail will be required. The INTERAC system offers a great deal of flexibility on how the Job Cost module is set up, allowing job cost reporting to be as detailed as necessary to properly manage the jobs. How is a job cost system structured?
Jobs / Phases / Categories (cost codes)
- Jobs are the top level breakout in a typical job cost system. Everything is assigned to and rolls up under a job.
- Phases are the next level. Each job is subdivided into phases, which are user defined and can be different for each job, or similar jobs can use a set of common phases. Phases are typically used to define distinct portions of a job like site preparation, foundation, framing, roofing, electrical, plumbing, etc… Every contractor and trade specialty will have their own way of defining what phases are meaningful.
- Categories or Cost Codes are the lowest level of the job cost breakout. Each phase is further subdivided using categories like labor, materials, equipment, subcontractors, etc… In INTERAC, the Job Cost system will accommodate up to 16 different categories, supporting job cost reporting at a very detailed level, where needed.
How Much Detail Is Enough?
Some contractors choose to keep it simple and use only two phases, one for cost and the other for revenue, utilizing the categories for the rest of their job cost reporting breakout. With 16 categories, this may be sufficient. Keeping it as simple as possible will make it easier in the field, in accounting, and for management.
Many contractors need more detail and need to utilize more phases on a job to adequately monitor and manage their job cost. For some this may mean several phases, where other more complex jobs may require hundreds of phases. Use as many as are necessary, but as few as possible to keep the system manageable.
If all jobs are similar, they may be able to share a common phase structure, allowing job cost reports to be formatted the same way from job to job. This can make interpreting reports much simpler. In some cases, there may not be enough similarity between jobs for a common structure to make sense. The categories remain common to all jobs for the company, but simple jobs may only have a few phases, while complex jobs have many more. In these cases, each job can have its own set of phases, independent from other jobs. For example, a new construction build will be much more complex and long running than a simple service call repair job.
It is important to keep in mind that someone has to keep track of all the activity on the job, capture it, and get it into the system. The more complex the job cost breakout, the more difficult it will be to accurately capture, the greater the time required for input, and the more likely it will generate resistance from users. Too much detail may be as bad, or worse than not enough.
A Word of Caution: Often management teams dream about all the detailed reporting that will be possible, but the burden of capturing all that detail on a daily basis becomes overwhelming for the field staff who end up being responsible for it. This alone causes too many job cost implementations to fail.
What About Setting Up New Jobs?
In most cases, an estimate was created during the proposal phase, before the job is awarded. It can be very helpful to utilize this estimating data to measure the actual production on the job. With this in mind, it is common to model the phase and category structure of the job cost system to the estimate. This will allow the information from estimating to be used in creating a new job, and then to compare the actual job costs to what was estimated for each phase and category.
The INTERAC Job Cost system supports comparative reporting, making it easy to measure production performance to budget all through the project life cycle. Keeping a close watch on the job costs will help to spot potential problems and avoid costly overruns. Integrating the Purchase Order system will make it possible to track committed costs which have been ordered, but not yet paid for. Outstanding purchase orders are shown as committed costs until the invoice is received and paid.
Where Does All This Data Come From?
With an integrated Job Cost system, most of the data flows in from interfacing applications. Labor costs come from Payroll. Materials costs come from Accounts Payable. Equipment costs can come from the Equipment Cost system. The beauty of an integrated system is that the information only needs to be entered one time, in the primary application, and will flow through the system to all the interfacing applications from there.
What About Job Cost Reporting?
Getting meaningful data out of the system is the whole reason to go to all this trouble. Generating job cost reports formatted in a meaningful way can make all the difference in the bottom line. Realizing potential issues before it is too late to react, avoiding costly errors, and managing cash flow are all benefits of a properly configured Job Cost system.
With INTERAC’s Job Manager and Report Manager all this job cost information is readily available through a very user friendly, point and click interface. Job Manager provides a one screen job summary and the ability to drill down to transaction level detail and even documentation with just a few clicks of the mouse. Any Job Manager information is easily printed or exported to a spreadsheet, allowing users to generate their own custom reports in seconds.
Report Manager provides a user specific menu of job cost reports right in Job Manager, making it very easy for non-accounting users to run their reports on demand. Not only does this give them instant access to the management information they need, it eliminates all the disruptions in the accounting office requesting updates.
When it is time to upgrade, give Intersoft Systems a call and let us show you what the INTERAC Construction Accounting System can do for your organization.