What is job costing in construction?

When you first start your construction business, it’s probably pretty easy to keep track of what each project is costing you. You buy all the materials yourself; you probably do most, if not all, the work yourself, and if you’re like most small construction companies, you tackle one job at a time.

However, over time, if you’re doing things right, construction businesses grow. You’ve got more jobs happening at the same time, you might have someone doing your ordering and logistics, and suddenly, it’s a lot harder to keep track of everything. At this point, you might be wondering what job costing in construction is. Here’s what you need to know.

What Is Job Costing?

If you ask any construction professional what is job costing, they’re going to give you a slightly different answer. Since we’re in the estimating business, we like to think of job costing as the end of the construction estimating process. A little like a bookend.

A construction estimate is a little like an educated guess. You can calculate your materials and do take-offs, base your labor costs on known variables, and use experience as a guide, but there are always surprises along the way.

Construction estimating is often based on assumptions, but job costing is fact-based since it’s based on actual invoices, time sheets, and other measurable project data.

How Do You Do Construction Job Costing?

Most construction companies have slightly different processes to approach job costing. Some allow their estimators to do their own job costing, while others leave it up to the accounting department. However, there are some similarities no matter what your process is, such as:

• Keep careful records and save all your invoices and receipts
• Track employee hours carefully using timesheets
• Issue purchase orders for things like equipment hire and assign them to a specific job site

At the end of the project, add up all your invoices, requisitions, wages, and other costs and then compare them to your original estimate.

What Does Job Costing Tell You About Your Estimates?

In a perfect world, your job cost will always be less than your original estimate, and you’ll make a decent profit on every job. But if you do notice that you’re losing money when you do your job costing, it’s a sign that you need to adjust your estimate assumptions, lower your productivity figures, or increase your markup.

Job costing can be a little nerve-wracking when you first start doing it. No one wants to discover that they’ve been basing their estimates on incorrect assumptions. But no one ever gets their estimates perfectly correct the first time, either. Treat this as a learning experience that can help you get your pricing as accurate as possible.