Costing of a Job and the Value of Time

Published on 23rd May, 2017 in SAP Business One by Andrea Vermurlen

Costing out a job is arguably the most important step to do well. Being able to track the costs of materials and labor accurately is necessary to determine which jobs are profitable, both historically and going forward. Being able to see into this data also allows for more accurate estimates and proposals. And you can forecast and mitigate cost overruns.

Tracking the Value of Time – Labor Time and Time Tracking

What many business owners overlook is the value of time in cost tracking. Time’s role in determining labor costs should be obvious – the more hours put into the job, the higher the labor cost. However, the factors that contribute to the number of labor hours usually aren’t visible, because the time capture method isn’t sophisticated enough to provide that visibility. 

Many job-based service companies have a big hole in their time capture systems, because their team is out in the field and manually enter their hours on timesheets or cards. Employees with fixed work sites, such as a warehouse floor, may clock in and out, but do they track the time spent on each job throughout the day? The information entered into the company’s payroll system is usually insufficient for tracking a job’s costs.
Payroll clocks and timesheet systems may meet payroll needs, but fall short in other ways:

Visibility into labor data starts by ensuring that it’s entered only once and is integrated fully into all systems. Your team in the field should be able to capture their time via their own mobile device, for example. Warehouse staff can be equipped with handheld devices that integrate time capture, order picking and inventory management functionalities.
Once your staff is able to easily capture their time, it’s easy to tie those hours in to specific jobs. This allows for real-time comparisons for projected vs. actual labor costs. The device can also prioritize tasks for the employee, minimizing down time while direction is sought. Time can also be captured for equipment, as well as employees, so equipment time can be tracked per project.

Time Impact on Material Costs

The time factor for materials may not be as obvious, but is just as important. Some ways time impacts material costs include:

Being able to integrate accounts payable and receivable with your ordering system will make the planning process much easier. Integration of data from bookkeeping, job planning and inventory management systems gives you the visibility you didn’t have before. This level of visibility makes it possible to prevent delays from materials arriving too late. On the other hand, you can avoid inventory carrying costs that come with having materials arrive too early. The goal is to have the right amount of the right inventory at the right time.

How does an integrated ERP and job cost software solution help reduce material cost? In the planning stages, milestones can be developed that integrate information about lead times and vendor credit terms. Reaching a particular milestone will trigger the ordering of materials for future stages of the job, based on the lead time needed for those particular materials. Your customer can be invoiced for the materials immediately or upon some other agreed-upon interval, and the vendor’s payment is issued when it comes due. This allows for just-in-time ordering to rein in the expenses that often accumulate during the mid-stages of a long and complex job.

In effect, management of material costs is accomplished by managing time.

What Does Poor Time Visibility Cost Your Company?

Bottom line – spending excess time on a job raises costs. That time can be in literal hours of labor, or it can be time spent idly waiting for the delivery of a key component. Time carries a cost; it could be overtime hours or extra days with a shipment of widgets in the warehouse, but it always carries a cost.

Time only becomes expensive, though, when you can’t see how much of it you’re spending. Visibility into labor and material costs is the best way to rein in the cost of time.

So, what’s the key to keeping your labor and material time in check and better managing your job costs? The right job costing software system. With SAP Business One and Eralis Job, you can get total visibility and control of your job costs, within a single system. Contact Aether Consulting to learn how the solution can improve job costing in your small or mid-size business:

Andrea Vermurlen, Marketing & Sales, Aether Consulting

Andrea handles marketing and sales for Aether Consulting.