One of the great financial management challenges for construction companies is calculating the actual monthly profitability of individual jobs. Accountancy profits are normally calculated after an invoice has been issued. However, construction companies often find they can only issue invoices once their claim has been accepted by the professional team acting on the client’s behalf. Another difficulty is that the people managing the accounts differ from those generating the claims and the two teams are notoriously bad at communicating with each other.
This results in big monthly profitability discrepancies, which cause confusion. On complicated contracts it’s not uncommon for contract managers to lose financial control of projects, leading to contracts not being invoiced for the full value. It is vital that both teams have up-to-date and accurate financial information. The solution is to include more site specific job costing systems to compliment the existing accountancy systems.
Job costing systems are a good way of managing the day to day costs on site. They also improve communication between the accounting managers and the contract managers, as the software can be designed to benefit both parties. Job costing systems are more flexible than accounting packages as they do not need to conform to tax, vat and audit control mechanisms. They can be configured to produce a number of useful reports, such as, accurate monthly job profitability figures, detailed breakdown of site costs, and daily plant and equipment costs.
In conclusion, calculating the accurate monthly profitability on jobs can be a challenge for construction companies. Implementing custom designed job costing systems can improve financial management, profitability, and communication.
Article by Duncan Stainer