Poor Construction Job Costing Habits Affecting Your Budget

In PlanGrid’s recent report “Construction Disconnected”, they revealed that the construction industry could be wasting as much as 35% of their labor costs, equating to a little over $177 billion dollars, sector-wide.

Lending to this costly problem is the disconnect from the jobsite to the office.

Construction’s $177 Billion Problem

As we dive into the issue, we find that the $177 billion problem affects all construction firms, regardless of trade.

In a recent webinar from busybusy, we took a deep dive into what the problem is. In a nutshell, construction is notorious for using old and out-dated methods to get information from the jobsite to the office.

The issue is that when you don’t know how your team is operating, you don’t know what to fix.

Just take a look at these results from a recent busybusy survey:

How Construction Reports Daily Activity

What this shows is that construction has a dependence on out-dated data collection processes.

With 70% of the industry relying on paper or text for data collection, this leads to inaccurate numbers coming from the jobsite.

With all of this bad data, it creates a real problem for your team back at the office. Here at busybusy, we call this jobsite disconnect “The Chasm”.

Jobsite Disconnect, or “The Chasm”

There are several problems with the chasm, but we call out these 5 specifically:

The 5 Problems with Jobsite Disconnect

Job costing in construction is a major indicator of the health of your business. Its very presence is an indication of the strength of your company.

Poor, inaccurate, or no construction job cost reports indicate an unhealthy company.

Strong, accurate construction job cost reports indicate a healthy company.

Poor Construction Job Costing Habits

Stay in construction long enough and eventually you’ll be guilty of “leveling the budget bucket”.

This is when we take a look at a budget and fudge the numbers to make our spreadsheet look like we didn’t go over.

Construction Budget Buckets

How we “think” our cost code budgets look

Essentially, we adjust what happened on paper so that it looks like we’re operating within the budget allocated for the sub-project, phase, or cost code.

This is part of the $177 billion problem!

When we’re allocating costs based on a budget then it leads to confusion in field operations. Just as in the manufacturing industry, as operation data becomes more accurate, your ability to identify and correct inefficiencies will increase.

Basically, when the data is accurate you’ll know what to fix.

Healthy Construction Job Costing Habits

On the other hand, strong and effective construction job costing habits rely on accuracy over a good looking job budget report.

Construction Budget Buckets

How our cost code budgets actually look

When a budget report looks messy it’s an indication of areas in your business that can be improved.

When your team reports and reviews the actual numbers of what occurred on a job, it sets your team up to improve target areas. As a result, your job costing efforts aren’t wasted, and your ability to identify problems and opportunity increases.

SMART Job Costing

Okay, so now that we’ve covered all of that, let’s dive into the good stuff!

What many have learned already is that job costing doesn’t have to be a challenge. As a matter of fact, it can be virtually painless.

Using technology, construction companies are automating the process of job costing, able to review at the end of each day what that day’s labor costs were.

We call it the “SMART Jobsite”.

SMART Jobsite Technology

A SMART Jobsite relies on technology to do all of the data gathering, eliminating the process of collecting paper time cards… and all of the confusion, inaccuracies, and hassles that come with them.

SMART job costing relies on 5 key elements:

  1. Specific: Data points tied to key performance indicators – Employees, Equipment, Project, Sub-Project, and Cost Code.
  2. Measurable: Quantifiable information needed to identify the health of your business.
  3. Actionable: The information needed from today’s jobsite so that you improve productivity tomorrow.
  4. Relevant: Sortable reports that allow project managers and supervisors to review jobsite productivity from several angles.
  5. Timely: Information RIGHT NOW.

It’s important to stress that last point.

Timely information is the key to making a SMART Jobsite really click.

When you can make decisions for tomorrow based on information from today then your ability to stay under budget and on the schedule will increase exponentially.

Easy Job Labor Costing

We have a firm belief here at busybusy: accurate job costing is the responsibility of every employee.
The challenge is making the process simple, intuitive, and easy to understand.

The best time to collect accurate information is right when work begins, instead of when it’s ended.

Simple Job Costing for Construction

Job Costing is done automatically as employees clock in and out each day

Gathering this information when work begins increases the accuracy and provides the office with that day’s information in real time. Smartphones are common in the construction industry, and so they provide the perfect opportunity to improve your job costing efforts.

This makes job costing and payroll a breeze, with the information at your fingertips. This data can be sorted all kinds of different ways, giving your office team the ability to analyze data, perform quarterly reports, and strategically plan.

Construction Job Costing App

Job costing data is gathered using the busybusy app

Using the busybusy app, inputing the information is simple for your field employee, and uses a smartphone that your team is already familiar with.

For accurate data for labor cost, we need 4 data points:

  1. Project or Sub-Project
  2. Employee
  3. Equipment
  4. Cost Code

The busybusy app collects this information from your field crews as they clock in and out.

busybusy Cost Code Switching

Employees can report multiple daily activities

As we all know in construction, it’s common for crews and employees to perform multiple processes throughout any workday. As employees switch from activity to activity (cost code) it is necessary to report this information.

The Results of BusyBusy

There are A LOT of stories from business owners who have improved their businesses as the result of effective construction job costing.

The results speak for themselves, regardless of the technology used. When companies know their daily costs it educates and empowers the entire organization to know EXACTLY what to do for maximum potential.

We have The Tale of Two Bens.

The Tale of Two Bens

These are two business owners on different sides of the country. Each of them has different challenges based on their geographic area.

Salt Lake City Ben relies on running a lean organization. Keeping costs down is a must for his team.

New York Ben has a lot of “red tape” to get through, so he relies on a larger team to navigate the East Coast construction world.

Both of these Ben’s have seen remarkable results as a result of effective construction job costing.

Ben High Country Results

Ben with High Country is able to run a lean organization through effective job costing technology

Salt Lake City Ben needed to operate his business as lean as possible.

This means that he needs to be able to review costs on a daily basis, and be able to verify that labor costs are accurate.

Ben has a good relationship with the developers that he works with, and a large part of that is because of his accurate numbers. It’s common for him to use his actual numbers during bid discussions, and helps him and the developer to get on the same team.

New York Ben

Ben in New York was able to grow his business by 600% in two years through effective job costing

By contrast, New York Ben wanted to grow his business.

In order to accomplish his goals, it became apparent that his team needed to have accurate data on a timely basis.

This allowed Ben to identify opportunities to improve productivity and efficiency, which ultimately fed his bottom line. Two years later his business had grown by more than 600%, and his portfolio has grown to over $100 million managed.

The point of all this is that SMART job costing works. Schedule a demo today to see how busybusy app can be a resource for your company!