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In our latest guest blog, our corporate partners, Integrity Software, discuss job cost recording.
It was reported that in 2018 the eight biggest Irish contractors made an average of just 1.8% profit. Fast forward to 2021, and with all the challenges presented by the ongoing pandemic, Brexit and labour shortages, profit margins in the construction industry are tighter than ever.
These extremely narrow margins mean that every single contract can hang in the balance, with the all too real possibility of them turning into a financial loss.
But what is the solution to an issue that has – and without meaningful change will continue to – rage on within the industry for decades? Paul Corbet of Integrity Software writes that improving margins should start close to home, by analysing your recording of job costs.
It may seem like a glaringly obvious observation to say that the accurate recording of job costs can be the difference between a profitable contract and a failing one, but it is equally surprising to see just how many top contractors still don’t have a handle on this very basic premise or are spending a huge amount of time and resources trying to collate their cost information against actual costs in their accounting system. Very often, the time lag before they have the true cost information can mean them not identifying if and where precisely they are over budget.
It’s hard to imagine how we ever handled a wide variety of day-to-day tasks in business without the use of an Excel spreadsheet – but that doesn’t mean we should be relying on them as the only tool to try and extract cost reporting as it is almost impossible to keep completely up to date.
Spreadsheets have long been an outdated, unreliable, and inefficient means of recording contract costs and they also are limited by their nature to an overreliance on the user updating the cost data. Most critically, construction companies do not use a single source of information that can give all teams in the company access to “real-time” data on Budget vs Actual Cost analysis. Communication between site and office, different methods of storing information and different departments and teams typically dealing with accounts, subcontractors, procurement, labour and plant also contribute to a lack of real time-critical information on each project.
Very often, using Excel in the business combined with these factors leads to pressure on everyone to keep checking if costs are up to date or risk running weeks behind on the data. Is there really any surprise margins are squeezed and projects over budget?
In an article in the Economist studying efficiency in the global construction industry, it concluded that 90% of projects run over budget and the construction sector was falling behind even the fishing industry as the most inefficient industry sector.
So why not change our behaviour?
We all realise from our experiences during Covid that our behaviours have changed. Some of us can now choose to work remotely, we have adapted to technology helping us communicate with one another and perhaps we realise that there are ways to improve the way we work, an easier way.
With technology, we have moved almost light years ahead since Microsoft launched Excel in 1985 but a lot of us still choose to use a spreadsheet rather than utilise other technology available that can easily help provide us with our critical business data. Maybe now more than ever we have come to a realisation that our behaviour does not have to continue as it was and we can adapt to improve how we work, easing that pressure on our staff and helping our companies to grow stronger.
A better way to record job costs
Even after more than 40 years in business, we meet clients who are unaware of a more efficient, secure, and manageable way to record ongoing job costs, without the use of an Excel spreadsheet.
Many don’t realise that construction-specific job costing software exists, or assume it is reserved for the very top tier companies who have teams of resources in every department or a system other than a basic accounts package requires an eye-watering investment.
Our construction-specific accounting and management software Evolution Mx is used by a great number of CIF members to make the process of recording contract costs seamless.
Its fully integrated job costing module means you can wave goodbye to the myriad of spreadsheets you struggle to keep up to date, and instead record all costs directly within the accounting system.
With a multi-tier cost structure, you can report at summary, cost head and transaction levels, to ensure you don’t miss a thing.
But you don’t have to completely shun your spreadsheets when choosing Evolution Mx – budgets can be easily imported from your BOQ to keep track of actual vs. planned costs, and all data throughout the system can be exported to Excel, allowing for even deeper analysis.
Unlike other generic accounting systems, you can define cost headings yourself, with a centralised library of cost heading groups and individual cost coding structures. This means you can group costs by job stages, such as foundations, roofing, finishing, etc, or split costs into materials, labour and plant groups. All this is planned with you and as a construction software provider, we manage the whole project with you in phases to help make sure everyone in your company knows how to use the system to make their job easier. As a company, we understand that we may introduce some new processes but ultimately this is managed by us to get to where your company aspires to be.
If you would like to see how fellow CIF members are using our construction-specific software to improve controls on contract costs and margins, we invite you to book an online demonstration. As a CIF Corporate Partner, we are offering CIF members a special introductory offer for a limited time – visit our website to book your demo and find out more.