Construction Job/Project Costing Training

how many people are like working with QuickBooks right now just just a couple right does everybody have a cost code system set up at their company sure the heavy highway guys do right and as we all know the most difficult part of any cost code system is getting that information reliably from the field right if you've got 10 cost codes if you've got 200 cost codes sometimes it doesn't matter if you don't have any cost codes you're lucky enough to get the job number from these guys right it's it's not unique to your business it's not unique to this area it is everywhere across the United States that getting effective information from the field is what job costing is all about the estimating portion of job costing is the easy part right you guys have probably estimating software you might have an Excel spreadsheet that you use for the estimating you H CSS has got an excellent X that's the mating program right that actually flops over into their job costing or field tracking right heavy heavy bid being the estimating right I wish and I'm sure they wish that it would work for other industries you know like it would be usable by electrical contractors or plumbers you know because I will not hesitate to recommend that software it's really really great software so again when we talk about the job costing I think in the blurb that was written on here I think there were five components of job costs and that we talked about that are essential really there's if you look at the first page with the actual first report you look at the the first bullet point they're the components of job costing where it says the original contract amount original estimated cost change orders to contract amount change ordered estimated cost actual amount billed against contract actual cost incurred and then committed and remaining committed costs okay these are what I consider the seven components of job costing every job costing a report you do has at least one of these items in it and every job costing report that's created is created off of these and calculations off of these items anybody see anything that's missing there other than information that's missing from your guys in the field or your project managers right well we look at this report on the top of the screen and I'll just show you the report here can read see that all right so we're gonna be taking a look at these sample reports here with just these three jobs that have various information in it again the easy part of any job costing report or the estimate everybody knows what you're gonna bill on a contract right everybody signs the dotted line and says we're gonna bill X amount of dollars for this hopefully you have also determined what it's going to cost you to perform this work right so the estimated costs are in there there's an estimated gross profit an estimated gross profit percentage so very high-level report really doesn't tell you anything just to set up to say this is where all job costs start all right again what level of detail we go into we're gonna cover that in a little bit in this session the biggest problem I see in the field and again not unique to this area not unique to your company is tracking costs and profitability of change orders right if I ask for a show of hands how many people run into this right it's don't be shy everybody does except those guys who use HC SS still the same thing right project managers around the globe will let you know that oh I got this thirteen thousand dollar change order right and then you ask them well how much is it gonna cost us well it's it's we're gonna build thirteen thousand dollars how much are you gonna you know what's the cost on it I don't have time for that right we're in the project we're running the change orders out there the biggest problem with this is the fact that on an over-under billing report on a percentage of completion report if you don't have those estimated costs on the change orders and you're increasing your contract amount your percentage of completion gets accelerated because your revised estimated cost hasn't changed okay and typically it's the accounting department that's asking for this information right the owner doesn't care because he sees that contract amount going up when it comes time for the either monthly or quarterly over/under billing reports to be produced it's either a 15-minute process or it's a 15-day process right because now you've got to come back to the project managers and ask them well what are the estimated cost here on these seventeen change orders that we got in the last month so timeliness of the information as you probably know is very very important to get that information right now get the information from the guys from the field and you you you treat a change order like a contract if it's a for $2000 job and it's a $13,000 change order that change order and its profitability is as important as the four and a thousand dollar job that change order or change orders can mean profit or loss on that particular project as we'll see in some of these reports and feel free guys I'm not on I'm not on Rails here so if you want to chime in tell me I'm wrong at any time please feel free to join in all right so again a lot of this is going to be rudimentary too a lot of you people but let's go ahead and turn the page here and we touched on that a little bit here with the change orders so if you look at the CEA Oh to report again my original contract in my estimated gross profit here when we go in and look at the second report that now has change orders in here that not only has change order the contract amount and change order to the estimated cost okay so again you look at the change order as a separate contract but it's a component of the original contract if we're not putting these in we're not revising our estimated gross profit right you'll see that in the second job that my profitability where it was and where it is now is much different all right this is because I've got a change order in there that has no contract amount it's a change order to say hey my costs are going to increase by $22,000 what can cause this for the guys that are out there that are working on it materials expense right that you went out and thought you bought out a job didn't get started on the project price a cop or tripled quadrupled right that's the other issue that we're gonna talk about later too is purchase orders and making agreements for purchase prices so that you don't run into these surprises this is a bad sign this is a bad sign here that I've got adjust my contract or my estimated cost by by $20,000 and I'm not gonna recognize any revenue on it okay sometimes has to happen again this type of a change order would probably be entered in the system to adjust your percentage of completion to make sure that you're not accelerated those kind of change orders can also mean a loss on the project unfortunately when we look at the item here where I see the change order to contract to two hundred fifty eight thousand dollars and I see my change orders for my estimated cost one hundred seventy seven thousand dollars that might be one change order might be ten change orders it doesn't matter the fact of the matter is that I do have a contract amount and I do have an estimated cost for that particular change order or change orders simple simple report again here guys the equations aren't here but if you look at the numbers I've got my original contract and if I add in my contract change orders my new revised contract or what I'm expecting the bill is gonna be at $350,000 right my original estimated costs were one hundred sixty three thousand I've got sixty thousand dollars in additional costs so my revised estimated costs two hundred twenty three thousand building on that first report that we looked at that was simply the original contract in the original estimated cost estimated gross profit is simply the revised contract amount this amount here - my revised estimated cost this is what I'm looking to make on that job that's the many gross profit in the equations back on the first first screen which is the estimated gross profit divided by the contract amount give you a profit percentage let's continue on here guys - the the third report and this is this is kind of exactly what you're saying so the top of the page again is back to the o1 report and here's the example that we see the jobs with the original contract amount the original estimated costs and the gross profit we're on item number four here so the components of the estimated cost and this is what you were talking about right the components of the estimated cost guys in general I will say that everybody can look at this and say estimated costs are broken down by your labor and associated payroll burden okay the payroll burden being the payroll taxes of FICA futa sudha workers comp potentially a 401k match if you've got it general liability insurance workers comp insurance Union and/or prevailing wage fringes that are paid right and these are the these are the items that Mary Beth was saying that this is what's forgotten right because people go oh yeah we're $13 an hour yeah you're on a job that is charging I think the Union contractors have a way better hold on it because you know what you paid that guy for that particular fringe right you know what that operator costs you know what everything costs a really benefits a report at the end of any project is to go back and look at what your average labor cost was for you know the last the projects over the last six months we need to see where that thing is so if we're estimating these projects at $27 an hour and we can't perform these things you know for less than $32 an hour we're lost already right you're talking about the labor labor is the X Factor that that estimated labor dollars that you're looking at has really got to be a solid number materials you make a call you find out what that concrete costs right you're making an agreement that in the next six months if I buy X amount of concrete it's gonna cost me this you buy out the job you're right a purchase order there's a contract that's a fixed cost you shouldn't lose any money on that should depending on the estimate shouldn't depending on the estimated quantity is there or not right if you go in and you say oh there's 5,000 cubic yards needed it ends up being 12,000 you either hope to write a change order or you take it on the chin right if we come down and look at this the subcontractors cross which you were talking about the fixed cost right the rented equipment jobs specific licenses fees permits and bonds so these are all the kind of general things that you can identify on a job that most people will know that these are the items that we need to go in to the estimate with okay Mary Beth pointed out a couple of these that some of the newer contractors miss right you don't you don't think about this oh it's not a job specific expense so we don't have to worry about it with the estimate that's where it gets into the indirect and overhead expenses okay this layout right here on the screen even though it says job cost related it looks very much like an income statement on your general ledger okay the top line would be your income which I don't show here but then we go into a breakdown a direct job cost maybe a subsection for indirect job costs and overhead expenses bottom line this would be our net profit right what I see and what I've been doing for the last three years again as those margins have been shrinking it didn't matter if your jobs didn't have all the indirect costs in it if they were making 30% and down at the bottom of line we had 22 percent who cares right now that we have margins of 5% on our on our bids we got to make sure that that 5% is not only covering the cost of the job but all these items that are down here in the indirect and overhead expenses really really really important you look back on a lot of these companies again there was a company here in Cleveland that I went to and honestly the owner sat down said he had the finance reports and he had job class reports and he goes every single one of my jobs is profitable why am I losing money okay and it was just that owned equipment inventory he had both okay he was not charging anything to his jobs for the owned equipment he was not charging anything that was in the inventory because after all it was shelves full of cash that anybody could have right inventory tracking equipment usage two of the main points that I've been working on with a lot of contractors over the last couple of years if you own the equipment there is always an equipment expense there's fuel there's licenses there's maintenance right depreciation all of these expenses that go into equipment in the past it was free right you can just use it just use the backhoe for the next six months and by the way you can use it on that job for six months and you can only use it two days out of the year but just keep the job there or keep it there for six months hey we need another backhoe oh yeah let's just buy another one right because that one's busy so these expenses here when you're looking at the estimating again heavy bid does a really good job at this of putting together a crew and putting together the equipment that's needed and there's an Associated equipment cost right on the on the heavy bid that says when you're using this particular piece of equipment you're going to use this crew and here's the cost for it then it comes a question of does your accounting system or does your job costing system equate for the ability to cost those items to the job another big one that I see is missed a lot is a shop yard time if you've got a fabrication shop a lot of the ductwork contractors the sheetmetal contractors they're pretty good at it because that's what they do I mean the installation is a small component of their business but they do have shop time the guys who are working the shop actually code their time to the job and that becomes a direct expense as opposed to an indirect expense for the mechanics that are out there the mechanics are working on the pieces of equipment for what for a paycheck obviously but they are also keeping those pieces of equipment working so the jobs can work and so the jobs can make money in that case even though they are not directly attributable to a job their cost or their expense should be somehow included in your estimated cost and should be part of what what's going on I think you'll agree with what you said is that x-factor is labor right yes as an indirect right yep so if you're estimating with it estimated equipment cost that's taken care of if you're not if you've got yard expenses or shop the the warehouse guy right the warehouse guy sits there and he fills trucks all day and why is he filling trucks he's filling trucks for jobs what do you think he's gonna write on a timecard oh I took five minutes for this job and and there's my 5 minute expense there he's not going to do that right so any of these overhead expenses you got to keep in mind that the labor the more labor we have everything else is a controlled cost if I'm looking at my labor and that's what I need to sit there and watch and monitor that overhead allocation I will say typically is based on that Labor dollars because that's the question mark right the more labor a job has the more of this overhead it should accept if you think of it that there's a project that's got a two hundred thousand dollar compressor that we're installing and it's going to take one guy as opposed to another job that's got a hundred eighty thousand dollars worth of labor and no materials guess what's gonna take more effort on your part on the accounting part on the project management side that hundred eighty thousand dollars worth the labor that job even though it's less cost is the one that's going to take all the time it's the one that should accept a lot of these overhead expenses whereas the other one you issue a purchase order it takes a couple guys with a couple uh you know wrenches install you're done and that's just sit that x factor right that hundred eighty thousand dollar job that you've got all laboring that's the one that you got to keep your eyes on because now you're performing to this there's a little blurb on on the article from Mike there and he kind of goes over that as well that the the overhead is a portion of labor again is one of those that most accounting systems can handle pretty well we do it automatically through payroll so you can tag a job or you can tag the entire company and say there's 38% overhead on top of this now that's on top of your FICA few to sue to workers comp right so when you look at your total job costing here guys with your labor your payroll your material subcontractor right into equipment the job that you were talking about with the X number of dollars in the materials and sub contracts and the whatever was the ten percent in the labor right that ten percent can just literally trash the whole project that ten percent is that x factor that you've got to keep on those hours you look at the estimated hours versus the actual hours you look at the estimated cost versus the actual cost and that job is going to take part of this thirty eight percent right because how long does it take to write a subcontract you probably got a form that's all done you know couple phone calls it's project manager exactly you know it takes you less time to write that subcontract for two hundred thousand dollars and it does to get the forty guys to the job for one day so so the the percentage that's defined or come up with guys is based on your company there's nothing that you can say that X amount is what we want to allocate or X amount is what we want to attribute ya do research to find out what is what your company carries an overhead non construction related but Schwinn bicycles you know I used to work in an industry that we used to supply Schwinn bicycles and everybody had a Schwinn growing up everybody wanted to Schwinn right that was the name at one time Schwinn bicycles had 600 people in their offices and they had 200 people in production ok a little bit overhead right it's also why they eventually moved to China and then eventually kind of disappeared so tracking the overhead expenses I think that could be a whole nother class you know on general ledger and and and doing income statements right because that's that's a whole other beast it is directly related to your direct job costs but again make sure that when you're looking at these costs and you're doing your estimate that you are picking up the indirects these in consequentials because these items when you get down to the bottom of the financial statement they will put a hurtin on your job profitability if they're not already absorbed into the actual cost let's move on here ok and this is where we get a little bit more detailed here guys that we're gonna go into this the the number 3 report okay again very high level we're gonna get to the detail in a second but this right here this report we were looking at all the estimate right the estimates with the change orders and making sure that the change orders we're getting from the guys in the field or getting from our project managers include a contract amount and an estimated cost amount here on this percent completed cost versus percent complete on income we now have actual costs and we've got actual Billings okay so this is a nice report to track as the project goes along it's not an over-under billing report but just shows you simply that we can compute now a percentage of completion based on cost and a percentage of completion based on income all right again very high level we're gonna be looking at a one that tracks it by cost class by labor by materials right a lot of times when we look at this I might be feeling real good about this that I built forty six percent of this project or excuse me that I've got forty six percent of cost on this project I've only build fourteen percent all right so this is a nice report just a little tattletale for your project managers to look out there and say hey guys by the way for the estimate versus the actual cost here's your percentage of completion on these projects right here is the percentage completion based on our Billings all right we've got some good stuff happening we've got some bad stuff happening overall I'm a little bit under build in the sense that I'm 27 percent complete on my estimated costs I'm 23 percent complete on my Billings for those contracts this job right here that says I'm 46 percent complete on my estimated cost i've only built 14 percent on that alright guess what guess what job is sucking money out of the company right there's a little cash flow problem there in the sense that that job right there is we're putting a whole bunch of stuff out there now maybe we haven't earned the right to bill maybe we work on a state project and we will get paid that we bill when we get paid because they tell us what we're getting paid but for the most part this report again nice tattle tale this job right here I'm 20% into it and I this project manager has told me to bill half of the contract amount already over zealous great cash wise great you want to make some collection calls that's the way to do it all right now it also might be a situation where we're doing it that well we're performing this job that well okay that Wow we estimated this one way hi we got into we estimated that we're going to be a lot more problems that we actually got into and we are okay with billing this amount their last jobs the perfect situation which will never happen ever in the history overall you're still in the in the the plus category right what I don't want to see is next month this thing hit 78 percent right on my on my percentage completion based on costs and I'm still only 20% billed I also don't want to see this job go to 90 percent next month and have my percentage completion based on cost at 30% because those Pio's didn't come in right that's what we talked about purchase orders and committed costs and remaining committed cost so the importance of those items that you don't want that surprise of writing a purchase order and getting down to the end of the project and forgetting that there's 10 invoices from subcontractors coming in there's 15 invoices from all these purchase orders coming in right first source not so much I mean materials they they bill you pretty readily right especially you gotta peel out there they deliver the goods and you get billed subcontractors on the other hand they're like all of us you know the billing might come in once a week once a month once a quarter but you want to make sure that with the purchase orders an outstanding committed cost that you've got out there that these are being tracked as well because those costs right there I might not have those 15 invoices from my subcontractors in and that's why this percentage of completion is so low I may have earned the right to build that much and my project manager knows that so when I shown this report he's gonna say oh yeah so and so and so and so and so and so it's gonna give me these invoices for $40,000 and that's gonna bring that percentage of completion on costs up to 38 percent there's a little confusion on over-under Billings at least on the financial level in the sense that a owner of a company is probably gonna if he's not in the know he's gonna look at an over billing and say tweet right you know bill bill bill bill how can we haven't build this yet how come we haven't build this yet right well over Billings when posted as a part of the financial world the over billing is actually a liability and under billing is an asset okay and we'll get to that at the last thing that we talk about here but just keep that in mind that when the the boss man's got the gear you know the hammer down to say let's build let's build let's bill it's not always a good thing to get as many invoices out as you can because now you've got that liability of having to perform the work after you may have already received the cash for it financial institutions bonding companies banks certainly don't want to see that okay guys I want to illustrate something real quick the question came up about this like the allocator or the the indirect expenses this is a real quick report it's just an example in in my system with the I've got one point four million dollars worth of direct labor expenses right and this is just my shop expenses here okay but this could be any and all of my indirect expenses that I want to allocate to the jobs very simply I've got two hundred fifty one thousand dollars in my shop labor shop FICA few to suit a workers comp shop supplies tools equipment expenses labor right all this can go in here very simple equation here that takes that $251,000 divides it by my total labor cost and this 17.9% is that amount that I'm a tag to every labor dollar every labor dollar that I cost in my job costing is gonna go in and cost 17.9% foundation well let you go in there and actually expense it and what it will do on the financial statements is I've got a line up here or a line item in my direct expenses that says indirect expenses allocated to jobs and then I've got an offset down here that actually credits on the financial statements so the percentage that we were talking about that if it's wrong it's wrong that's gonna show me right here because I might have $240,000 expensed up into the job cost and I'd be able to see here that there's a difference of ten thousand dollars so I'm under allocated if I put twenty two percent on these jobs I would then be over allocated right and I'm seeing that I'm taking too much up to the jobs I'm over expensing the jobs for the overhead same thing we talked about the equipment and the profitability right all right so just an example here now this is when the catfights begin cost codes cost codes cost codes and I just in that few seconds that we were chatting along here everybody said it reliable information from the field your cost code structure is based on one thing and one thing only reliable information from the field you can have ten cost codes you can have a thousand cost codes if you're working for the state you have the potential of having multi thousands of cost codes right because your cost codes are probably designated by the line items that they've got in the notebook which they'll change on a whim so don't commit any of them to memory all right on the other hand when we look on cost code structure the question is what can be tracked and what can be tracked reliably does the guy know for the I got a couple examples here a drywall contractor can the guys hang in the sheetrock can you tell you putting up a 4x8 sheet or a four by 12 sheet hopefully right there's a big difference in weight and getting them around corners and putting them up and looking at the stack it's either 12-foot longer its eight foot long we talked about it right there there's a culture there's a culture that you need for these guys to buy into for them to give you this information back if they don't see any benefit to it and they don't care whether they were pouring concrete doing a slab on grade doing flat doing curbs doing sidewalks if they don't care these reports are pretty much useless on a cost code level if you're not familiar what cost code structure is guys it can be very specific to your business okay I've included a copy of the construction specifications Institute the CSI codes these are the old codes they now have how many divisions anybody know right offhand like 50 to 58 yeah there's a whole bunch more than you see here right this is this is the the old breakdown works really well for a general contractor but you can see that if you are in one of these particular trades if you're in two metalworking or you're into concrete it's a good structure at least for a start okay how many cost codes do you guys run in your business yep yep it's it's a crapshoot on what you're gonna get right yeah yep it in the notes that I wrote before it's one of those things where you can start small you can start with one cost code and then as you're as you're working towards this structure that you want to develop you say let's now break this down because I need to track this I need to know if Hall is something beneficial for us to do or it's beneficial for someone else to do okay so I'm gonna break this cost code out for hauling and say I'm gonna put my subcontractor costs here I'm also gonna put my direct labor cost there I'm then going to look at these and I'm gonna do nothing but subcontracted costs on this job on with you nothing but direct you know self perform it on this job then I can actually compare those two cost codes and look at the dollars that are going into them of course we have to track some kind of quantity right to find out whether or not we're profitable it's it's easy to expand its easy to contract right problem is when you come in and and a lot of times when we go and install software somebody's never done it before and there's one guy who is project manager from XYZ company that was a 200 million dollar contractor and he's coming into this eight million dollar contractor and he wants to institute this cost code structure on this eight million dollar business right and they go he's gonna get nothing and he gets frustrated and the owner gets frustrated because all the job cost reports what he's doing is really good if you've got the people and the mindset in place to track it there is no problem with setting up a cost code structure and tracking it on a single job keep that in mind that you don't have to go full you know you have to go whole hog in the in the cost coding structure it might take a year to develop it might take two years I will tell you that a lot of the cost code systems and structures that people have have taken a lot of time to develop right so again the the CSI codes that are shown here bare minimum nice break down to start with some good descriptions and then you can see how these can be then subdivided into additional codes that's why these as the old divisions the new ones 52 58 whatever the number is I know it's more than 50 they've gotten into more detail and more break down with the CSI codes alright those are available out on the web okay so again the the breakdown with your your cost coding structure that's that's what those things where you can sit and talk about it all day literally all day whatever works for you start small start with to cost coats see if they can get regular versus overtime they'll get that one because obviously the pay difference right yeah that's that's no problem so here's one of the foundation framing roofing rough exterior finish interior right just just an example but each one of these has those components that we talked about way back when we're talking about the estimate right are labor dollars of material dollars of rented equipment so when I post my material expense and it comes in through an AP invoice if I've got on a purchase order this is probably already designated to what cost code and job it's going to go to labor is coming from time cards lots of lots of lots of advancements in the field recently with electronic timecard systems and electronic entry oh my god I mean 10 years ago the the construction industry was technologically deficient I mean we were dumb you know the accounting software was the most advanced thing they had in their office now with your GPS and HD SS you know we've mentioned that all your guys in the field have laptops right all the prop or the superintendent's or project managers they all have laptops everybody's got a cell phone right there's a blue million applications that'll track time on your cell phones and all these applications have the ability to put a job number in a Costco number the employee number is defaulted to the app that's on the phone so they literally click clock in clock out and we were talking about the geofencing which is awesome that if they clock in and they're at home you can get an email sent to you that says Scot just clocked in but in fact he's in bed so they're there they're out there there's so many of them that the price is extremely competitive we work with everybody I mean anybody anybody does a job clock there because we we can CSV file which they all produce a CSV file and import it yeah so there's another benefit of that to you guys that the timecard entry is zero are you guys you're using a heavy job are you importing time cards in your system yeah so they they do all their they're filled guys do all the entry on their laptops and then they update to your probably heavy job manager right then they extract the time cards out and you can I've seen I've seen payroll for 350 people done in ten minutes it's insane yeah the great thing about the great thing about reviewing it and everything is that it is not a problem for the entry clerk anymore it is a problem for the person in the field it's the person closest to it the foreman now I bet you guys will agree with me the form and get it that they don't want to hear the guys complaining to them right so they will adjust and they will make take takes a while I've seen I've seen the electronic timecard systems take about a year to implement and really get working but when they do it's it's flawless and it's new to those guys right they're there to drive a truck they're there to drive an excavator they're there to go hang something on the wall there they're not there to play on computers all day I was in Atlanta last few days it took me five seconds to think of where I was yesterday right you know I don't I don't remember what I did yesterday I'm going to wait until the end of the week and tell you by project by cost code what I did all week ain't gonna happen so daily time cards on these big projects I think are one of those things and you guys see that in HC SS that they are quite literally probably at the end of the day going back to the hotel or going back their laptop and they're putting the time in so yeah again a culture change right all these things these guys are not used to it because they've never done it it's I always find that it's you you would think that it's a harder sell to give these to the Union guys the truth is the Union guys seem to be a whole lot more accepting to it because I think they get it they they they get it they're in that mode there a lot of Union contractors that I go to they say no we can't tell the guys to do that you know it's not part of their thing and I say well it's part of what your company does so have them do it and there's not as much resistance for a full union contractor as it is for the other guys who have kind of you know it's family business small contractor everybody's you know and now all the sudden I'm being told what to do wait a minute you mean you're gonna charge me for those gloves you're gonna charge me for that stuff I'm taking out of the warehouse okay and and we talked about it as well that when it becomes an issue of profitability not only of the job profitability and sustainability of the company and people buy into the fact that guys the company's losing money and the company's losing money because the jobs aren't making money right so we can't exist by just giving these jobs away and will fund the jobs that are losing money the the reason the jobs are there are to make the company money and ultimately make everybody money and stay around and not go out of business all right let's flash forward real quick here guys to the report number six it says percent complete with cost quantity and hours this report again when you're coming up with your cost code structure we were talking about the doors right we're not so interested in how many fasteners we are using right but we are interested in how many of those $2000 steel doors were we're putting in right if the type of door or type of installation becomes the cost code and we can track a quantity on it quantity reporting is huge quantity reporting is the pinnacle of job cost reporting in my in my mind quantity reporting allows you to go in and say not only did it cost me this much did it take me this many hours to do it but this is how many I did all right I can look at someone's system that did quantity reporting and be an estimator tomorrow and I will make money on every job right because there is a estimated cost per quantity for installation I'll get to you in one second year so I've got this cost code structure here of 4-inch pavers there's a unit of measure there 8 inch sewer line roofing installs shingles exterior stucco you need a measure my estimated quantity so my quantity relates to my unit a measure I've got estimated labor hours and then you'll see there's a percentage of completion that I can calculate based on the estimate versus actual not only on labor hours but on the quantities installed and the cost incurred huge I now know what it cost and how many hours it takes to put in 50 of those doors right by Costco so that's the determining factor right that one item that you're looking at tracking the heavy highway guys have got it easy because their breakdown is based on their billing and their line items that are on the billing there's another one for you if you're billing by a ia a lot of people will have a cost code structure that is the same as the billing items on the AIA that might mean that every job has a different cost code structure but if you've got a project manager or someone close to the job that's out there they're looking at what items are going to be billed that period and they can cost code those appropriately not a great idea for a 200 line a a certainly a great idea for a 20 line AIE I just want to touch on the over/under billing because ultimately all the job costing whether we go you know we start out with the estimate and the estimators they estimate every single one of those fasteners right they're getting the finite detail what you want to do is hopefully compress that job costing into a manageable amount of codes or items that you're tracking in the field right and then we get down to the ultimate or the the final portion of this which is on the financial statements and the over/under Billings and you remember when we talked about this revised estimated cost right this right here change orders change orders change orders change orders change orders need to be put in the system change orders need to be tracked change orders need to be put in system and they need to be tracked when they happen okay not when we get to this point and we're creating an over/under billing report for the second quarter and oh yeah by the way I had this hundred thousand dollar change order I forgot to give you and it's from February not not a great time to get that all right so change orders as you're getting change orders in the system make sure that you've got the contract amount and the estimated costs rule of thumb for the people that say we can't give you the estimated costs on those change orders I don't care if you break down by cost code let's talk about profitability at least let me know what you're gonna make on this change order so if it's 5% 10% if you want to use the original estimated gross profit on the job we'll stick with that the bottom line is that we've got to get some kind of estimated costs in here because the over/under billing report is defined or determined by the percentage of completion okay percentage of completion based on cost so I take my cost to date and I divided by room up my revised estimated cost that gives me my percentage completion a lot of different ways to get to this next number which is the earned revenue okay I like the kiss method where it you just take percentage of completion and you multiply it by your revised contract amount if I have completed 46 percent of this project I have earned the right to build 46 percent of my contract amount that is this earned revenue okay billions to date how much I build and then I'm either over build or under build based on that earned amount does that make sense don't think that those accounting people are so smart over under buildings are not that difficult people make them difficult because they want to make them look like what they think they should look like as opposed to letting them look like what they are right although this note with the percentage of completion this is a number that a lot of people will play with again very simple over/under billing report a lot of people will look at this and they will do the forecasted hours at completion or forecasted dollars at completion so if you got a project manager that can actually look at this and say I've got my cost to date here $103,000 my revised estimated cost of 123 the project manager is good he said he's gonna tell you got a hundred thousand bucks left in this project he can tell you that if that's the case then then that cost to complete is actually what the percentage of completions actually increased that would be one of those change orders that you put in with a negative twenty thousand dollars on the estimated cost because you're buying down that project right if any percentage of completion goes up your earned revenue goes up and your right to build more on that project goes up as well as does the profitability on the job okay you

Channel: Construction Employers

Views: 43,088

Keywords: construction, employer, association, AGC, contractors, builders

Id: dcEU1l9qNBM

Length: 46min 48sec (2808 seconds)

Published: Tue Feb 12 2013