Budget & Job Cost Setup

Gain control of costs

Most companies know they are supposed to keep track of jobs by cost, but why? Some contractors feel that they have fulfilled their “duty” to control cost simply by tracking them. Tracking costs accurately is essential, but doing something with the costs you’ve tracked for each job is the key. If you don’t intend on doing anything with the costs then don’t bother tracking them, but if you want to control your jobs better than ever, or estimate even smarter, then keeping a watchful eye on cost is essential.

Let’s face it, the Owner has more at stake financially than anyone else in a construction company, but they didn’t hire a Project Manager in order to continue having to pay individual attention to each project. They have to trust the Project Manager to be their eyes. The problem comes when the P.M. is looking at the wrong things.

A good Project Manager is not one that just manages a project. Although maintaining the schedule, getting the job built on time, staying on top all of the paperwork as well as the myriad of other responsibilities are all mandatory requirements but what about costs and bringing the job in on budget? If a company is not proactive in this, it’s just the blind leading the blind.

That is where the budget comes in; without a budget, there is no cost control. The budget is a necessary component that consists of the planned costs for each item of work to be performed on a project and becomes the benchmark for comparing actual costs as they occur.

For great cost control management, the key is, by comparison, to pay close attention to the items that are on pace to cost more than the budget and much less time on those that are not. After money is lost, when the project is complete, it is too late to discover the areas that have under-performed. In order to have something to compare to the budget we must also track costs.

There are two reasons to track costs: first, as mentioned, to compare those costs on a regular basis to a budget in order to identify portions of the project that are under-performing and therefore require attention to eliminate or mitigate the underperformance, and, second, to develop valuable cost information that can be fed back to estimating for future bidding purposes. These costs can be represented in man-hours, units completed or any number of ways; again, the point is to identify items of work that are costing more than planned.

In addition, job cost information is essential to the estimating department. The estimating department, or the individual that estimated the project, must be the principal source for the budget. If they are going to derive valuable cost information they need to be part of the process of developing the budget to define exactly what it is they want to track. Without their involvement the tracking process will be useless to the estimating department.

Greater control requires effort from both top management and personnel and the hardest part will be developing a system and procedures as well as establishing a routine.