This process improves team coherence and speed in addition to enhancing revenue per man-hour.
Imagine a business where every team member knows exactly how their work impacts the bottom line, where project managers can make real-time decisions based on accurate data and manage projects to profitability. Effective job costing processes, whether you are a professional service firm or general contractor, improve team coherence and speed in addition to enhancing revenue per man-hour.
At its core, job costing is about creating a culture of accountability and excellence. Focusing on the process of comparing actual results to team expectations creates opportunities to ferret out meaningful opportunities to change course, find cost savings, and deploy additional resources to meet critical deadlines. This shift in perspective leads to a more engaged workforce that takes ownership of their roles and responsibilities, coordinate more effectively, and communicate transparently.
Implementation of job costing can be a messy initiative. Estimators and accountants rarely track and classify data the same way, and creating a framework for these resources to work together can require a significant commitment from leadership to ensure they are communicating effectively.
My experience implementing job costing programs for multiple firms over my career has led me to create this top 10 list of recommendations for other leaders implementing these tools. The financial impact of effective implementation is often a 1.5-3X increase in revenue per man-hour and overall project efficiency.
- Establish a weekly job cost review cycle. Create a routine for collecting, analyzing, and reviewing cost data with the team. Ensure all of the key players are there – project managers, estimators, and the accounting or analysis team responsible for providing comparisons. This will be one of the most expensive hours of your week, so it needs to have meaningful engagement from all parties.
- Set clear expectations. Clearly define who needs to be in attendance, and what they are responsible for bringing to the table. Project managers should be able to provide an updated “percentage complete” for every job based on progress. Estimators should have budgets for every project that has been quoted, and updated budgets for any projects with changes. The accounting team should have updated the budget to actual comparisons for all projects based on cost incurred.
- Perfection is not the goal. Translating information between each of these groups is a fundamentally messy business, and people will show up with incorrect data at times. Group communication and an engaged leader will ferret out these gaps and create opportunities for learning and training across the team in a real-time environment.
- Foster transparency. Encourage open communication about financial performance and make cost data accessible to all stakeholders. Better information allows these different teams to hold each other accountable and drive process improvements – whether in how cost data is coded, estimates are built, or PMs assess completion on job walks.
- Review all jobs, focus on the most meaningful. The comparison process should be simple: What percentage complete does the PM say the job is based on work performed? What percentage complete does your accountant say the job is based on actual cost versus budget? What percentage has been billed? Focus on the projects with the most significant discrepancies between these data points.
- Hold teams accountable. What specific action items is everyone walking away with after the meeting, and what can they do that same day to realign resources and keep jobs on track to target profitability?
- Refine and adjust regularly. Continuously update forecasts and budgets based on the latest data and feedback.
- Communicate with clients. Use the information gleaned from this activity to inform clients on how you are managing their project, what changes you are implementing, and what they can expect next.
- Document and learn from each project. Conduct post-mortem analyses to document lessons learned and apply them to future projects. Maintaining a job cost database with budget to actual data enables better estimating on the next project.
- Celebrate success. Recognize and reward effective management to reinforce the behaviors that lead to exceptional performance. Sometimes the biggest operational victories aren’t the most profitable projects, but the ones that had the most challenge in getting or staying on track.
Please reach out to us at Zweig Group if you would like more information or assistance in implementing an effective job costing program. Contact us
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Stuart McLendon is a fractional executive at Zweig Group. Contact him at smclendon@zweiggroup.com.
