Time Tracking
Labor budgeting and tracking is a significant challenge in the construction business. Fundamental questions like, “Did this job make money?” and, “Are we over-budgeting or under-budgeting labor for XX type of job?” cannot be answered without careful, systematic labor tracking.
Here’s the problem though: A timecard and a wage rate aren’t going to cut it – even the classic reports from QuickBooks Desktop showing straight time cost, overtime cost, etc., can fall short.
We at Knowify decided early on that we were going to track labor in multiple different ways, our goals being to give construction companies insight on job profitability by capturing fully burdened labor costs correctly, and give the estimators and project managers at those companies insight on expected progress via hours worked vs. hours budgeted.
That second part is very under-appreciated, but extremely important, since estimators think in terms of hours required to complete tasks.
One of the first things an accounting advisor should do when going into a construction business is take a deep dive into labor cost to figure out the appropriate burden.
To do so, they must make certain assumptions about crew productivity. Given the effects of overtime and varying wage rates for employees with the same job title, if all you’re capturing is dollar cost, it’s going to be very difficult to tease out at the end of a job whether the estimator did a good or bad job in terms of estimating crew productivity. That means it will be difficult for him to improve in the future.
It is extremely valuable for an estimator to see how many hours he budgeted (for each labor role) to complete a certain task compared to the actual hours recorded to complete those tasks. That’s how he’s going to get more accurate with his estimates.
Further, you really can help your project managers by actively tracking the estimated versus submitted hours. That way, if the hours say the job should be 50 percent complete, and the foreman/super says the job is 30 percent complete or a deadline is coming up soon, you can make adjustments and try to get things back on track before they get too out-of-hand.
Regarding burden, it’s very important you get the business owners you work with to recognize that labor cost is far more than what they pay their guys in wages (leaving 1099 subcontractors or cash workers aside). In many cases, when all the various taxes, workman’s compensation, benefits, and more are factored in, hourly labor costs can increase by more than 30 percent.
If you’re looking at a job P&L that doesn’t have labor burden correctly applied, you could be very easily mislead into believing that a money-losing job is in fact making money.
And that’s a recipe for trouble.
And, of course, burden is no less important for estimators. They could do a fantastic job of estimating materials, hours, etc., but if they’re marking up unburdened labor when bidding, they’re going to be consistently underbidding jobs. One of the first things an accounting advisor should do when going into a construction business is take a deep dive into labor cost to figure out the appropriate burden.
Generally, we do not recommend including basic overhead like office rent in the burden calculation, as that will make the accuracy of your job-based labor costs sensitive to resource utilization across the entire company. It’s better to focus on those costs that can and should be attributed to the job. Think of it as “the real cost of having a guy on the jobsite doing work.”
Then, later, once you figure out what your project margins tend to look like, you can perform additional work to figure out how many jobs you need per month to achieve the level of profitability you’re targeting. It is at that point that a careful consideration of overhead comes into play.
Dan de Roulet is co-founder and partner program manager for Knowify LLC. de Roulet, who has a long history as an entrepreneur and business developer, strongly believes in the potential of the Knowify software to significantly streamline construction company operations.