Job costing is the method of tracking and allocating all direct and indirect costs to individual construction projects. When applied consistently and accurately, job costing can help streamline the bidding process, act as a risk management tool and improve decision making.
To be competitive, a bid generally needs to be as low as possible, but as high as possible to stay profitable. Job costing can help management find the challenging equilibrium of a competitive yet accurate bid by providing a better understanding of project costs and profitability of previous jobs. An effective bidding process can prevent the company from bidding and winning a job only to find out later that their estimates were too low and the project will result in a loss.
Improved Risk Management
Minimizing project risks and surprises is critical in maintaining a profitable company. While it is impossible to foresee all problems and eliminate all risks, learning from past mistakes can help manage current and future jobs. Having accurate job costing allows management to assess the financial impact of problems encountered on previous jobs and determine the level of risk they are willing to take on a future project. Thinking through these risks ahead of time and building buffers where necessary can help prevent big hits down the road.
Informed Decision Making
Job costing provides more accurate financial information on individual jobs and company performance as a whole. This information allows management to better understand the current position of the company and future forecasts. It helps decision-makers identify changes in the market, recognize potential business opportunities and make strategic decisions about service areas. Management may also be able to anticipate future cash flow and funding needs before they arise. Together, these benefits can lead to improved profitability.All Insights