Better Jobcosting for Contractors in 4 Easy Steps

“Tell me how you measure me, and I’ll tell you how I behave.”  – Eli Goldratt

The quote above tells us a lot about how human beings behave, whether it’s in school, in life, in work, or even in love.  If 80% of our school grade was based on whether we came in the next day with our homework done, most of us would have spent more time doing homework.  But that’s not how we’re marked.  Our marks were based on occasional tests and a final exam.  And, if you were anything like me, you never did your homework, and the night before the test you buried your head trying to cram a month’s worth of work into about 4 hours of studying.  Why?  Because that’s how you and I were measured – by our test scores.  Tell me how you’ll measure me, and I’ll tell you how I behave.

Is your landscape company showing your employees how they are being measured, or you all out there head down in the dirt, waiting for Friday’s paycheck?   If you’re not jobcosting and reporting results regularly, then your company is not measuring.  If you’re not measuring, I can guarantee your company, and your people aren’t trying hard enough.

It doesn’t take a CFO to setup jobcosting, but it can seem like it when you’re trying to get started.  Anyone can do it, the secret is keeping it simple enough for it to work.   First, make sure you’re using an accounting package that can do jobcosting.  It’s worth the small extra cost.

STEP ONE:  SETUP YOUR ACCOUNTING

First, decide what exactly you need to know.  This is critical.  But your decisions on how to track time and costs must not only fit your needs, they absolutely must be simple enough for everyone in your company to use and understand.

If all you care about is whether the job made or lost money, then all you really need is one cost code to handle all your work.  But most owners want a little more information.  You probably want to break down your costs by work type.  In Quickbooks, for example, these work types are setup as cost codes called Service Items.  A sample list might look like this chart below:

Each job will have one (or more) of these cost codes assigned to the different tasks on the job.  The cost codes help you standardize your work types from job-to-job, so that whether you call it a Front Patio on Job A, a Back Patio on Job B, or an Entrance Driveway on Job C, they can be easily tracked to 102 – Hardscape Installations.

If you’re using Quickbooks, you’ll also need Payroll Codes.  They can be similar to the list above, or different, but the idea is the same, you’re going to break up your labour in different cost codes.

The golden rule of jobcosting:  start simple.

Jobcosting is only ever going to be as good as the information you get back from the field.  In a perfect world, you might think you want 100 cost codes to track each all your different tasks, but your crews would never be able to track their time accurately against all those codes. With this system, you’re worse off then you were without jobcosting – you’ve got a complicated, time-consuming system where nobody uses the results because they are not accurate! 

There are two ways to get to the top of a cliff.  You can climb the sheer face or you can take the stairs.  Sure you could climb the face faster, but only the most experienced climbers make it.  The rest of us amateurs would probably fall, and it’s no different in jobcosting.  Start simple.  Take little steps.  It takes longer to reach the top, but it’s so much easier to get there, and nobody gets hurt.

So start simple and work your way up as needed – forget about trying to cost and compare every single material on the job.  If that’s what you want, then you probably need a dedicated person on jobcosting and accounting all day.  For most of us – summing the costs by these categories is good enough.  If there’s a problem, you’ll see the totals are way off and you can always drill down into the invoices and costs to see what went wrong.

If you’re reading this, doubting that your foreman are going to be able to manage even a simple list of cost codes, then perhaps it’s time to question who you have as foreman.  Remember – all you’re going to be asking for is what address they were at, and what simple task type the crew was working on.  If they found their way to the jobsite in the morning, I’m sure they can follow this system.

How do they know how to track their tasks?  Read step two.

 STEP TWO:  SETUP YOUR ESTIMATES

If you think of your estimates as just a vehicle to get a price to your customer, you’re selling your company short.  The estimate is a critical system for any contractor.  It takes the plan for the job out of the estimator’s head and puts in the hands of customers and employees.  Agood estimate sets the price, defines the goals for profit, and shapes how costs will be tracked.  Good estimates must break down the hours, equipment, materials and subcontractors needed for the job and quantities for each.  You can’t ask a crew to get a job done in $12 a square foot, but you can ask them to get it done in 60 hours.

Once the costs and goals are clear, assign each major work type on your estimate(s) to one of the standard cost codes (Quickbooks, for example calls them Payroll Codes) that you setup in accounting.  No matter what you call the work on the estimate, you can standardize all task tracking by the cost/payroll code.

Print a version of the estimate for the crew.  Estimating software makes this process far more efficient… but not matter what you use, this is a critical step.  Don’t include prices, but do include the major work types on the estimate, the cost codes assigned to each, and the estimated hours for each.  This is why it’s so important to keep the system simple.  100 cost codes mean the crews have to assign their day’s work down hour-by-hour against these 100 different cost codes.  It’s not going to be accurate and you’ll know it, so you won’t use the data anyway.

So, if you’re working on a Patio for the Jackson Residence, the crew’s copy of the estimate needs to clearly show that the Cost Code for the patio is 102.  As timesheets are filled out and vendor invoices are handed in, they crew can mark these with the site address (or job name) and code 102.  They know the cost code, because it’s on their estimate.  All they need to know is what site they’re at and what task they’re working on.  Simple.

A lot of contractors think they want detailed breakdowns of the hours for every task on the job.  In theory, this would be great.  We’d be able to manage down to a super-detail level and we’d improve the way we estimate every task.  In reality, it rarely works.  Most owner/managers are far too busy to look at super-details for every job, and they have even less time to crunch all the numbers together to use them.  If you’re in construction, you’ve probably found that every job is so different (soil, access, parking, material staging locations, foreman + experience, shape, sub-soil conditions, etc.) that times don’t necessarily transfer well from job to job anyway.  And most importantly, there’s very few crews/foreman who can track their time accurately to the level of detail you might think you need.  In reality, they’re bringing their paperwork back to the shop and randomly distributing their hours at the end of the day in an effort to come in under budget on as many tasks as possible.  This isn’t helpful information and I wouldn’t want to base future estimates on it.  Now we have a complicated system, that’s relatively useless to driving improvement.  More work, less results.  We need the opposite.

Keep the task tracking simple, so it can be done accurately.  As crews get used to it, you can increase the details… if you find it necessary.  Many owners find the summary details perfect for their needs.  Just make sure the estimate (or the crew’s version of the estimate – the Job Planner) breaks down how they should track their time (which payroll codes to use for each major task) and what the expected hours were.

Job Planner Hours Summary from LMN's landscape estimating software

 STEP THREE:  TRACK COSTS IN ACCOUNTING

Almost all the popular accounting software offer jobcosting versions – and most are only a slight increase in cost over basic versions.  It makes sense to your jobcosting where you do your accounting.  All your payroll and expenses must be entered in accounting, so why not use it?  Otherwise, you’ll need a 2nd system, doubling data entry time and doubling the risk of errors, omissions and mistakes.

With the hours and vendor invoice coming back from the field coded by job and by code, accounting can enter time and costs to the appropriate job and cost code.  Simple, quick reports out of your accounting can will show you exactly many hours were spent at each job, at each major task, and you can compare it back to the estimate to make sure things are happening on schedule.

This step is important:  Vendor invoices should be reviewed by the owner – or someone ‘in the know’ – before they are entered into accounting.  Each vendor invoice should have the jobsite written on it (the crew can do this before handing in), then the owner must write the expense account the invoice items should get booked to.   Then accounting will have the information they need to enter the invoice correctly.  A simple stamp will make this easy…

So many owners look at their numbers at the end of the year, and know they are entered incorrectly, in the wrong categories, and in many cases don’t even know where certain costs are actually entered!  This is because someone else is deciding where/why expenses get allocated.  It’s unreasonable to expect bookkeepers and accountants are going to be able to accurately allocate expenses the way the owner expects to see them.  The owner must take a proactive role in coding the expenses before they are entered.  Once they are coded, they can be entered accurately and when the end-of-year statements are generated, your company’s numbers will be accurate, and useful to you… because you were the one who classified them!

You can also summarize all costs and revenue across those major tasks to find out which services are profitable, and which ones need work.

STEP FOUR:  SHARE THE INFORMATION

Imagine school without tests.  No report cards.  No way to know were good at and what you needed to work on?  They just asked you to do your work and all you got at the end of the school year was an invitation back next year – or not.  Sounds like a great place to have fun with your buddies, but that’s about it.

Stop and think about your company.  What are your measurements?  Who’s handing out the report cards?  Who’s telling your staff when they’re winning and when they’re behind?

Without any score, it’s no wonder most employees are at their jobs just for the paycheque, and fail to respect paperwork, systems, procedures, details, and all the other mishaps that drive your profits into the ground!!!  

Without any measurements, your company is a great place to cash a cheque every 2 weeks, but that’s about it.

In order for jobcosting to have any impact on your bottom line, results must be shared and shared regularly.  Regular reviews clearly demonstrate the importance of getting jobs done on time (you’re measuring it) and they also will help you build systems that differentiate, evaluate, reward, and improve your staff.

Don’t treat your business like a hobby, because it is a sport.  It doesn’t mean you can’t have fun… it’s is a lot more fun when you’re winning.  To win, you need to keep score.  Done simply, any company can do it.  I guarantee it will not only improve your estimating, but it will improve your field productivity, your profits, and the respect your employees have for their work.

No jobcosting?  Your employees won’t see success as important.  And without jobcosting, who are you to argue with them?

Landscape Management Network is an online suite of budgeting, estimating and operations systems built to help landscape contractors build better businesses.  Learn more at www.landscapemanagementnetwork.com