Most contractors know which jobs felt profitable. Fewer know which jobs actually were. Job costing is how you find out, and when it breaks down the damage is quiet: bids are priced on bad history, losing jobs look fine until they close, and year-end brings surprises that nobody saw coming. Here are the mistakes we see most often, and how to fix them.
Why job costing matters beyond the job
Job cost reports do more than track individual projects. They drive your work-in-progress (WIP) schedule, and for contractors who recognize revenue on a percentage-of-completion basis, costs incurred to date are what determine how much revenue and profit you report. The same numbers shape your bids, your cash planning and how a surety or bank sees your company. If the costs going in are incomplete or late, every one of those decisions rests on bad information.
1. Labor charged at the wage rate alone
An hour of field labor costs far more than the hourly wage. Payroll taxes, workers’ compensation and liability insurance, union fringe benefits, health coverage and paid time off all belong in the cost of that hour. When jobs carry only the base wage, labor-heavy jobs look more profitable than they are, and the missing cost lands in overhead where it is easy to ignore. Set a fully burdened rate for each trade or class of worker and review it whenever insurance, benefit or wage rates change.
2. Costs coded to the wrong job, or to no job
Materials bought in bulk and drawn from the yard, small tools, fuel, and crews who move between sites during the day are common sources of miscoded costs. So are field timesheets filled out at the end of the week from memory. The result is that some jobs absorb another job’s costs, and others look cleaner than they should. Simple cost codes, daily time entry and a clear policy for yard materials go a long way.
3. Costs entered late
Supplier and subcontractor invoices often arrive weeks after the work is done. If job reports only reflect invoices that have been entered, a job can look on budget right up until the bills catch up. Track committed costs, such as open purchase orders and subcontract balances, alongside actual costs, and make sure month-end includes an accrual for work performed but not yet billed to you.
4. Change orders handled outside the system
Extra work is often performed before the change order is priced or signed. If the costs are buried in the base contract, you lose track of what the change actually cost and weaken your position when negotiating payment. Give each change order its own cost code from day one, record pending and unapproved change orders separately, and follow up until they are signed.
5. Estimates to complete that never change
Under the cost-to-cost method, percent complete equals costs to date divided by total estimated costs. If the total estimate is never updated, a job that is running over will show too much progress and too much profit. The correction comes later, as profit fade, often in a large adjustment at year-end. Project managers should revisit estimated costs to complete at least monthly on every open job, and expected losses should be recognized as soon as they are known.
6. Equipment and overhead left off the job
Owned equipment has real costs: depreciation, repairs, insurance, fuel and financing. When those costs sit in overhead rather than being charged to jobs at an internal rate, equipment-heavy jobs look better than they are. The same is true of overhead generally. If your bids don’t recover the cost of your office, supervisors and insurance, you can win work and still lose money.
7. No look back after the job closes
The most useful job cost report is often the one for a finished job. Comparing actual costs to the original estimate, by cost code, shows where your estimating is consistently off, which project managers deliver on budget and what types of work earn the margins you expect. Without that review, the same mistakes are priced into the next bid.
Practical steps
- Use a consistent cost code structure across all jobs, with separate codes for change orders.
- Charge labor at fully burdened rates and equipment at internal rates.
- Enter time and costs promptly, and track committed costs alongside actual costs.
- Update estimates to complete monthly and review the WIP schedule with project managers.
- Compare estimated to actual results on every completed job.
How we help
We work with contractors to set up job cost structures, review WIP schedules, calculate burdened labor and equipment rates, and prepare financial statements that sureties and lenders rely on. If your job reports aren’t telling you what you need to know, talk with us. Learn more about our construction practice.
This article is general information, not accounting, tax or legal advice. The right approach depends on your company, contracts and accounting method. Consult your advisor before acting.