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Basics of job costing

August 1st, 2017 / By: / Business, Management

Unlock your company’s growth potential by knowing the basics of job costing.

The growth of the tent and event industry is truly inspiring. I’m in awe at some of the projects that get bigger and flashier as time has gone by. Not only is this a good thing—it’s a GREAT thing, as long as we keep a pulse on the costs.

Identifying the unknowns

The tent and event industry is highly specialized and full of innovative products to help companies grow. But just as we spend time looking for ways to grow, we must also spend the same amount of energy on identifying the unknowns—the unknown areas of our businesses in which we spend time and money unnecessarily. And job costing is one of the areas that carry a big payback.

In fact, knowing how to break down job costing is essential to growth, especially when bidding contracts for which multiple people will be working with large amounts of equipment.

Job costing deconstructed

Job costing—as defined by the BusinessDictionary.com—is used when each job is different, is performed to the customer’s specifications and involves keeping an account of direct and indirect costs.

For every project, breaking down costs begins with defining and documenting direct and indirect costs. Direct costs fluctuate and are project specfic, such as consumable supplies, shipping, labor, commissions, direct materials and rental equipment such as forklifts.

Indirect costs for the most part are fixed and are necessary to operate the business day-to-day, such as salaries, rent, telephone, utilities and accounting expenses.

Where’s the money?

The greatest opportunity to increase efficiency lies mostly with direct costs. Of course, there are long-term savings in indirect costs such as negotiating lower rent, a better phone contract and turning the lights off at night. But those costs will always be there and overall are a percentage of direct costs. I believe the greatest impact can be found in tracking and documenting efficiency within direct costs.

The best place to start is by making a list of every action crews make during the process of a project. Think of every movement made. Consider the moment you park the truck to be loaded, count parts, sort, stage for load, load, deliver onsite, unload in the drop area and stage equipment next to the build site. Consider the building or assembly process, water breaks, dismantling the project, palletizing, re-loading the truck and shipping back.

Ask yourself questions about the project. How long did it take to count, to palletize or rack, and how many people were needed to build that tent? Did the project have the right number of people? Was overlapping labor efficiently managed?

It takes a village

The good news in job costing is it doesn’t have to—nor should it—rest on the shoulders of one person. Operating a business properly, efficiently and profitably is a team effort. Most employees like to feel they play an important role, and this is where they are provided the opportunity. Four steps that can guide your team are: Experience, Document, Adjust and Execute.

  1. Experience: Encourage employees to use their experience to help document the time it takes to achieve a task.
  2. Document: Document the task and make notes on what works and what doesn’t.
  3. Adjust: Make adjustments based on findings.
  4. Execute: Put your findings in action.
And repeat

The cycle starts over again with each new project, but the four steps always come into play. After you complete a job and document the time it actually took to perform, you can compare that against past performance and use the new data for upcoming bids.

It’s an ongoing process, this job costing. Boiled down: Find the unknowns. Have fun. Serve each other. Serve our customers. And find profit.

By Gregg Swinford, SE regional manager, scaffolding and event solutions for BilJax®. This column is adapted from an education session Swinford presented at IFAI Tent Expo 2017.

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