|
What is Job Costing anyway?
The classic dilemma in custom manufacturing operations (manufacturing operations that build different products per job or customer spec, rather than a series of widgets/part numbers) is Job Costing.
In concept, Job costing is very simple. Total Selling Price – Total Costs (Labor + Materials). Right? Basic Profitability.
Although ProjectSuite provides for many different levels of detail in Job Costing, they are all really extensions of this basic principle. Additionally, there is one component that needs to be addressed; Productivity. There are times when Profitability on a Job is directly related to Productivity, and times when they seem unrelated.
- Profitability based Job Costing answers the question “Did this Job, by itself, make money for the company?”.
- Productivity based Job Costing answers the question “Did this Job, by itself, conform to my expectations (really with regards to Labor)?”
- Assuming my expectations are consistent with profit (covering overhead, etc…)
- I know what they are.
- I apply them in my estimating/sales process.
In talking to most business owners, they are asking for Profitability analysis, but they usually want something else, and are not articulating it. If I answer the Profit question, it really leads to more questions that result in productivity analysis. For example:
Q: Did Job xyz make money?
If “YES”, then:
Depending on some dynamics in your company, this might be good enough. You might say to yourself “Whew, on to the next one”.
For some of you, this just begins the process. You are really going to ask the same question as you would ask if the answer was the opposite.
If “NO”, then:
WHY?????????????????????
Profitability alone is not enough. Most existing business are not in the Red very long, right? They go away when that lasts for more than a year or so. There is a good chance you are in the black, or have been until recently. You really don’t want to know IF you made money on a job past the ability to see trends from type of Jobs, Customers, or seasons. You almost always want to know why. If you do not know why, you cannot make decisions to do something about it. This really leads us to Productivity analysis.
What we are really looking for is oddities, and situations outside of our expectations. Then as we analyze other jobs, we look for the trends, and see where we should focus resources to improve.
For example, if I always find problems with specific customers, and their requests for materials, or delivery, I can charge premiums or other charges. If I see there was lots of OT on a job, I can track the activity, and find out if it was due to over-scheduling, process control, etc… Some of these problems may be Job Specific, or they may be endemic to the operation. If I consistently see that 50% of my labor dollars occur in one department, then I can choose to automate it, or change design characteristics to increase profit.
We are talking real, hard dollars here. Not just theoretical feedback from people managing lots of processes at the same time.
Depending on who I am in the operation (Owner, Manager, Financial, Production), I will look at these concepts differently, and respond differently:
- Profitability: Did this Job make money?
- Why?
- Labor?
- Materials?
- Rework?
- Design/Communication
- Outside forces (customer issues, transportation, market forces etc…)
- Productivity: What happened to this project in the process?
- Did I hit my production benchmarks (assuming I have some)?
- Did we operate within our estimate?
- Is it a repeated problem? Do I see this trend in other Jobs?
- Materials
- Did we source materials that were untypical?
- Delivery issues causing expediting?
- Design problems?
- Customer specs?
- Labor
- Reworks?
- Overtime?
- Machine/Process efficiency?
- Bottlenecks?
How do we get there?
ProjectSuite provides very diverse tools. The goal is to provide you with tools and resources without creating so much administrative overhead you lose the benefit of the process. None of this makes sense if you have to hire a $30K/yr administrative person to increase profit by $25K/yr!! During training we will help you determine how much detail, and how much benefit you can get from Job costing, and help you set up your process using our simple tools.
Sale Price:
A couple of basic issues here:
- What is the sale price? Is it the estimate, or is it figured out after the manufacturing?
- Do you want to analyze the total price, or do you have consistent price categories to analyze ( e.g. Products, Secondary Processing, Installation, Support)?
- Job Types and Specifications: Are jobs grouped in typical types, and are there characteristics I can use to compare on job to a similar job?
Costs:
- Materials
- Items purchased just for this job.
- Items pulled from common stock.
- Outside processing and non-labor charges.
- Labor
- How much detail?
- Just Total Dollars?
- Actual Hours?
- Hours per department, and/or operation?
- Hours as Regular, Overtime?
- Separate rework hours?
- Rates/Costs: Are costs associated with:
- Personnel
- Machine
- Department
- Operation
|
