Ron Roberts

Early one Saturday morning, two friends were having a

cup of coffee together doing what businessmen do:
discussing business.  Despite both being concrete
contractors, their backgrounds, businesses, and
successes could hardly be different.

John Gains runs a $20 million business that serves
the commercial, industrial, and institutional markets.
He founded his company 20 years ago with his brother
Ted. They started out pouring patios, sidewalks, and
driveways for home builders and home owners.  John
bought out his brother 10 years ago, switched the
company's focus, and grew his company into the machine
it is today.

Terry Fulton had a far different introduction to the
concrete business. His father owned and operated a
small concrete company. Terry went to work for his
father in the field at age 16 but moved onto other
companies after dropping out of high school. He
continued to work in the field forming, pouring and
finishing concrete during his teens and twenties.
For years, Terry rejected his father's invitations
to join the family business.

10 years ago, after being frustrated by the poor
leadership and unsteady hours of the companies he
worked for, Terry changed his mind and joined his
father. His confidence as a businessman grew so much
over five years that he ended up buying his father
out. The company pours residential foundations,
driveways, and patios. Terry's company has topped
out at $2 million in sales. 

During this morning's conversation with John, Terry
revealed that despite hitting his financial goals
most years, he really doesn't have any idea what
individual jobs cost him.  John sympathized with
Terry's plight. 

He remembered how much harder it was to track costs
back when his company was doing jobs that ran between
one and two days.  Today, his typical project runs
several weeks. His team tracks all costs per job, he
knows each job's profitability, and his estimators
excel at cost prediction. John had discovered a truth
about job costing - the smaller the average job, the
harder it is to track costs in a meaningful way.

John took a slow drink of coffee and decided to try
and help Terry out. "What is keeping you from knowing
your project costs?"

Terry explained. "When we run a job cost report from
our accounting system it shows the labor charges
assigned to the job and the materials that were
delivered to the job. The report doesn't include
material taken from inventory such as nails, wood,
plastic sheets, and gravel.  The report doesn't
include the cost of our equipment, such as our Bobcat,
nor labor burden, nor overhead."

Terry's answer told John everything he needed to know
about Terry's approach to job costing.  It was filled
with holes. John proceeded with his questioning.

"How do you estimate jobs?"

"I predict the labor time and material costs then add
in overhead. I double check the cost per square foot
or cubic yard against our averages to make sure I
didn't blow a calc. Dad had so much experience he
could look at a job and just know. I can't do that."

"Okay. More questions. How are you tracking time?"

"My foremen write down the hours each worker worked
and what job they worked on. Many of our jobs span
two days, so the foremen note the time the crew
finishes the first job and moves on to the next."

From his own experience with small residential jobs,
John knew most of Terry's jobs varied greatly in
preparation, forming, and finishing. Terry wasn't
tracking the labor in a useful way. John continued
on.

"Does the time required for base preparation,
layout, and forming per square foot run consistent
or does it vary greatly?"

"The average varies greatly between driveways,
patios, and sidewalks and it even varies quite a
bit within each category. Curved driveways and
sidewalks throw all the averages off."

"Have you tried to track the labor time by task?"

"I don't understand your question."

"Have you ever asked your foremen to note the time
spent prepping the ground, the time spent installing
the forms, the time spent pouring, and the time spent
finishing?"

"Yes, and it created a mess. My foremen complained.
My bookkeeper complained. The timecards were loaded
with errors and the data didn't make any sense. We
gave up."

Terry's response brought back many painful memories
for John. He had fought this battle for years. He
explained to the foremen why job costing was so important
to the amount of work his company could provide them.

That worked with several of his foremen but not all. He
finally laid down the law to his foremen and
superintendents. When he made recording labor time by
work task a non-negotiable part of their job, the entire
team started doing a better job with the paperwork.

"Terry, first of all, you need to track the time spent
on the major tasks. You will never be able to estimate
and schedule accurately without that information. Second,
you must be firm with your foreman and bookkeeper. They
will record and store that information accurately. Oh,
and change your time cards. Assign cost codes to each
major task and put the codes on the back of the
timecard."

"How many different codes should I use? Do I try to
catch all of their activities?"

"Focus on the activities that account for 80% of their
time. My rule of thumb is ‘Never try to track more than
four activities per crew per day.'

"When I was your size, my foremen tracked time by the
major components: ground preparation, layout, forming,
pouring and finishing, cleanup, and drive time. The
projects my company now performs allows us to have
specialized crews.

"Each crew has its own set of cost codes.  For example,
our forming crew tracks layout time, forming time, and
break-down and clean-up. They also track the part of
the job they are working on, whether it is footings,
slabs, or walls."

"Wow. My foremen and bookkeeper are going to throw a
fit."

"That's why you have to make proper tracking a
non-negotiable. By the way, you should also track your
equipment by the job. Unless all jobs need the exact
same equipment, you need to spread the cost of the
equipment only over the jobs that use it."

"Why can't I just roll my equipment costs into
overhead?"

"You will end up over-estimating the cost of jobs that
don't need the equipment and under-estimating the cost
of the jobs that do need it. You might lose good jobs
and win bad ones."

"Ouch. Okay, so how can I track the use of inventory?"

"Honestly, we still fight that one. If I were in your
shoes, I would assume the quantity estimated is what
went in."

"How is my accounting system going to reflect that?"

"Great question. Unless you are using sophisticated or
customized accounting software, your accounting system
will probably never produce a report that shows the
true job costs. We have special reports written into
our package.

"When I was your size, we relied on Excel spreadsheets.
We loaded the labor hours, equipment hours, and
inventoried material quantities into a spreadsheet and
calculated the costs based on our fully burdened labor
rates, our average material costs, and our hourly
equipment rates.  We added in all other direct costs
such as delivered materials and subcontractors.  We
compared the cost produced by our spreadsheet against
the cost we estimated for the project."

"That sounds like a lot of work. Is there a quick and
dirty way?"

John smiled at Terry's question. Everyone wants a fast
and simple solution to tough problems. In this case,
there was one. 

"Just track your labor hours per cost code. Compare the
hours used against the hours estimated. If you are good
on hours, you should be close on cost and schedule."

"I always thought that might work. What's the downside?"

"Construction isn't the most profitable business in the
world. Running a little over on materials or using
equipment inefficiently eats holes into your profits.
Not as much as running over on hours, but it does hurt."

"John, you've got THAT look on your face again. What are
you holding back?"

John didn't want to insult Terry, but Terry asked for it.

"Terry, you may be still missing a critical benefit of
job costing. It allows you to set up effective bonus
systems for motivating and rewarding fast work. Having
fast crews is a tremendous competitive advantage and
virtually recession proofs your business all by itself."

Terry was just beginning to realize John's real message:
job costing is essential to running a construction
business profitably. That's why Terry enjoys his coffees
with John. John's been there, done that, and willing to
help Terry as long as Terry listens.

For large concrete contractors such as John, job costing
is fairly straight forward and easy to get right. For
small concrete contractors such as Terry, job costing is
a never ending headache - but it is essential to the long
term health of every construction company.

Thank You - for stopping by.

May your construction business bring you everything you dream of.

Your friends and champions,

Ron Roberts and Guy Gruenberg,
The Contractor's Business Coach
www.ContractorsBusinessCoach.com

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