The 4 E’s of Effective Job Costing
In my conversations with clients, it seems that bidding/estimating are constant areas of concern. Are we bidding correctly? Are we losing jobs because our estimates are wrong? How could we have missed that bid? Did we really forget to put that in the estimate? These are the questions that contractors are constantly asking themselves. So how do you know? How can my clients tell if they are bidding/estimating appropriately? The answer is JOB COSTING!
Many software packages allow for accurate job costing which is: Assigning revenues and expenses to specific jobs throughout their lives to obtain the profitability of each job individually. Expenses in job costing include both labor and materials. Best practice job costing involves both an estimate or budget as well as a record of actual costs and revenues. The comparison between the two is often used for bench marking and estimating new jobs.
There you have it, if job costing is performed correctly you have an accurate measure of how well you are estimating/bidding jobs. I like to use what I call THE 4 E’s of EFFECTIVE JOB COSTING.
The Four E’s
- Estimate: Estimate the costs and revenues for the job
- Execute: Win the job and begin the process
- Expense: Track the costs & revenues as they are incurred for the job
- Evaluate: Review estimates vs. actual to determine the profitability of the job and accuracy of the estimate/bid
If these 4 E’s are followed there is no reason that a company should have guess work on jobs that are similar to ones they have already performed. They won’t have the missed items, they will know if they can drop the bid and where to win the job. The EVALUATE aspect is when managers can explore the estimated cost & revenues to the actual to determine if the estimate was correct or not. If there were areas that were not estimated/bid correctly, what were they and how can that aspect of bidding be improved?
So remember, if you want to know if your bidding/estimating is accurate use the 4 E’s of EFFECTIVE JOB COSTING!