Track Bid and Budget Data To Avoid Cost Overruns
Cost overruns are a perennial drain on profits. The culprits can range from design changes to weather-related delays, from do-over work to unanticipated increases in the cost of raw materials. Regardless of the source, the end result is less money for the contractor. While there are no guaranteed methods of preventing cost overruns, contractors can reduce the chances that unanticipated extra costs will adversely affect their bottom line by making good use of cost tracking tools.
Delving into the Details
Project accounting and project control software can help contractors keep projects on budget. Instead of waiting until a job has been completed to find out if it was profitable, contractors can access real-time data showing project costs. Tracking detailed information broken down by cost codes helps contractors identify where and how cost overruns are occurring. By quickly taking steps to correct developing problems, contractors are better able to get a project back on track and stay within the budget’s guidelines.
Tracking Change Orders
Too often, contractors are not fully paid for all of their employees’ labor or for the use of equipment, tools, and material needed to complete change orders. Using software to identify and document change orders, assign appropriate charges to the required changes, and record when payment is received can help eliminate uncertainty and ensure that the contractor is paid on time. This is particularly relevant since many contracts have notice clauses that require the contractor to notify the owner of the impact and cost of additional work within a specific time frame. Promptly billing for change orders can help minimize cost overruns and protect profit margin over the life of a project.
Preparing More Accurate Bids
Having verifiable job cost data allows contractors to more easily determine whether their bids on past projects resulted in the projected profit margin. With detailed information, contractors can identify which parts of a project conformed to bid projections and which went off budget. Future bids on similar projects can be refined to minimize the possibility of overrun problems.
Job Cost Reporting
Job costing systems vary in their capabilities and complexity. Basic features to evaluate when comparing systems include:
- The level of job cost detail the system can track
- Standard reports and the extent to which users can create customized reports to meet their needs
- Integration with other software (project management, estimating, etc.)
Ultimately, the best system is one that a company can use effectively to produce the critical information necessary for making smart, timely business decisions. We would be happy to help you analyze your company’s specific needs.
“…identify which parts of a project conformed to bid projections and which went off budget.”