Job costing will help achieve profit, create better employees and simplify paper work
By Mike Jiggens
Job costing is an important part of a landscape contractor’s operation, yet few companies know how to effectively utilize it. Effective job costing will boost a contractor’s bottom line, benefit a company’s culture, create employee work incentives and simplify paper work.
Mike Lysecki, chief technology officer for LMN – a landscape estimating and timesheet software company in Whitevale, Ont. – shared the advantages of job costing in January with an audience of landscape contractors who attended Landscape Ontario Congress in Toronto. His presentation also outlined key mistakes that can be made in job costing.
Prior to his association with LMN, Lysecki was the director of operations for nine years at TBG Landscape in Whitevale where he streamlined the company’s operations, helping it grow to a $50-million operation from $3 million. He said he learned several lessons along the way.
The first mistake in job costing, he said, is that landscaping companies either aren’t doing it, they’re not doing it enough or they’re not doing it on time. He admitted job costing might be considered a “pain in the neck” among those working in the field who have little desire to track various data and for those in the office who must interpret that data in a manner that is usable, readable and good for estimating. Taking the time to create awareness of the benefits of job costing for all employees is worth the effort, he added.
“Talk about the benefits to all your staff, including the first thing about job costing.”
Lysecki said everyone wishes to make more money, but that can’t be done unless it’s determined what is making money.
“What jobs and services consistently make money? What things should we focus on? What should we stop doing?”
The idea, he said, is to go after the business that generates the most revenue and profit.
“Ultimately, that will improve everyone’s standard of living in the company.”
Measuring job performance
Job costing has a significant impact on a company’s culture. Lysecki said if an employee isn’t aware of how he is doing at his job, he might be inclined to put in a lackluster performance. Using a “scoreboard” or a type of job performance measuring device will inspire employees to work harder, he said.
“If you’re not talking to the foreman or the estimators and even bookkeeping about how we’re identifying things that are working and not working, then everyone just assumes we must be doing so well that the stuff isn’t even that important or we’re making too much money or we don’t have to try very hard.”
Implementing a scoreboard reinforces the importance of making money every day and is a vital component of job costing.
Accurate estimating is born of job costing, he said, adding it assists in knowing where a company is over or underestimating in areas such as labour, time and materials.
“Job costing will also really help us pinpoint those problems and improve them so we don’t keep making the same mistakes year after year.”
Mistakes are repeated without job costing, Lysecki said. The company owner or operator will sometimes learn mistakes the hard way and correct them, only to hire someone new to help with estimating and watch that individual make the same mistakes as his predecessor because there is no system in place to ensure repeated errors are eliminated.
Job costing is the key to incentives, he said. Budgets are set for crews who will be taught how the budgets are derived. They will understand that each time they complete a job in less than an estimated time frame that they can begin on other jobs in a timely fashion, ensuring maximum revenue. When
revenue goals are beaten, it seeds a staff bonus program.
During his time with TBG Landscape, Lysecki said he learned how many extras were missed prior to the implementation of an incentive program. Without job costing beforehand, extras weren’t being tracked.
“But if crews are now getting measured on their performance or something comes up above and beyond what they were asked to do, you can bet now they’re going to track it so that they don’t look bad on their scoreboard.”
Common mistake in job costing
A common mistake leading to bad job costing is the quick estimate, Lysecki said. Square foot pricing, for example, is difficult to job cost. Contractors can track labour and material costs, “but it’s pretty difficult to track it if the crews don’t know how you want to track. It’s really difficult to tell a crew that at $20 a square foot how many hours they have to complete that work.”
There is also the need to know if a particular job will be done by hand, by a machine or by a machine fitted with a specific attachment.
“If they don’t know any of that information, then it’s really difficult to figure out if that $20 a square foot is the right price or the wrong price or if the crew is taking too long or whether the estimate is right or wrong. Estimates should be built – labour, materials, equipment and subs.”
Pricing by the square foot should be determined by how long the job will take to complete as well as the equipment and materials necessary, Lysecki said. This will provide ammunition for how the job will be bid, and the plan can be given to operations to organize the job.
A quick and easy way to determine the cost of planting is multiplying the cost of the plant by three to arrive at an installation price, but Lysecki said it doesn’t help with job costing.
“If we figure out we went over budget, was that three times too much? Were our plants just so cheap that we didn’t recover enough labour when I just multiplied it by three? Did we take too long? Did we go too quickly? Is three the right number?”
He said those questions cannot be asked unless it is known how long the job should have taken and the equipment and materials required.
An estimate becomes the framework for job costing, breaking down how the job is to be tracked, how detailed it should be, and knowing what subsections sub-contracted work should be broken down into. Without a good estimate, nobody knows how to track their time or costs, Lysecki said. With an estimate becoming the framework for tracking costs, accounting and bookkeeping will better understand everything and crews have a better knowledge of their role.
Jobs can be broken down into such areas as hardscapes and softscapes, with each phase having its own set of estimated hours, “and that becomes the way we’re going to score the job.”
With job details properly broken down, bookkeepers will enter all associated costs so that they are easy to translate.
“Without that, everybody’s guessing.”
Technology has made the process simpler. Lysecki said doing everything on paper tends to lead crews to fill out anything or nothing. Such misinformation as incorrect spelling and erroneous dates is handed into the office where it becomes the problem of the office staff. Those employees are forced to reinterpret everything and make corrections.
Lysecki said no matter the efficiency of the office staff, at some point they will give up and stop fixing little details. By the end of the year, job costing will have failed.
“With technology, you can streamline or validate information as it’s happening.”
Technology such as estimating and timesheet apps gets dates right and limits choices. Using paper, crews can write in anything or nothing, but the right app will force job costing their time the way it needs to be tracked.
“They don’t have a choice to do it any other way.”
Taking away the guesswork
Lysecki said the big lesson he learned about job costing and estimating is that crews and accounting personnel can’t be expected to simply guess and be accurate.
“You have to really give them a framework and say, ‘here’s your job, here’s the tasks, and here’s how often we need this filled out.’”
The method allows staff to better plan jobs. With less time spent crunching data, more time is available to carefully plan jobs better, leading to fewer mistakes and better job costing.
“The people who fill out that information are in the field every day with dirty and sore hands. They’re hot, cold or sweaty. There are three other people on site running around with equipment, wheelbarrows and dirt. There’s a lot going on to keep track of at that level.”
Most job costing efforts fail, Lysecki said, because crews will go from filling out nothing to adding far too much detail and trying to do it all in one step. He said everyone is busy enough as it is, and adding more work makes things more difficult.
What needs to be analyzed first is labour since it is the biggest variable and can lead to a job going over budget. Materials and equipment can also be the culprit of a job going over or under budget, but it is almost always labour, he said, making it the one that demands the greatest focus. Labour is also providing the best information because it’s the crews in the field who provide the best job costing information.
Lysecki cautioned, however, that a landscaper shouldn’t want a system that is too complicated because crews don’t want to and don’t pay enough attention to filling out paper work. They are not enamored by the task and fail to see the big picture. The goal is to simplify as much as possible because even though the bookkeeper might process the job costing information, it is the foreman who provides the information, “and he’s got 150 things on his plate everyday.”
It should be kept at a level that is informative and useful, yet not too detailed, he said.
“It’s way better to have less information that we actually trust than lots of information that nobody trusts.”
A good job costing system should include accounting in the decision-making process, Lysecki suggested, adding too many contractors don’t effectively use their accounting departments.
“If you set up job costing and it doesn’t go into accounting very well, it’s all going to get washed away anyway.”
Lysecki said it’s much easier to take an accounting database and add complexity and more detail than it is to take a detailed one and simplify it and merge things together.
“It’s a lot easier to start simple and split than it is to try to merge.”
Starting simple ensures better information and makes everyone’s jobs in transition easier, he said. Instead of introducing a new system to everyone that they don’t understand, it should be kept simple.
“You’ll still have good information you can trust, and then it’s easier to spoon feed some complexity in later.”
He compared it to climbing the face of a cliff. Scaling a cliff is the fastest way to the top of a mountain, but most people will fall if they attempt it. If there were stairs up the mountain, it would be a slower yet safer climb.
“That’s the way you might want to look at job costing.”
Building up complexity
By building up complexity one stair at a time, the summit will likely be reached, he said. By trying to “scale the cliff,” or going from little job costing to highly detailed job costing, it probably won’t work, resulting in a fall to the bottom.
When pricing out work, the number of unbillable hours must be taken into account so that the rates charged take into account time spent loading, driving and washing trucks.
Lysecki said merging job costing and payroll into one system saves time because it’s only one set of data entry.
“In the past, you would have crews clocking in over here, they were writing time over there, and I would be looking at this time and this time and justifying them and passing this sheet over to payroll and this sheet to someone entering job costing into a spreadsheet, and we’re all touching this information three, four or five times.”
Less data entry means less duplication of work. It goes into the system once, but comes out a couple of different ways. The technology prevents hours from being missed and having workers paid for 10 hours while logging in only eight. The question of where the other hours come from can readily be accounted for.
“Now every minute of time they get paid for is cost somewhere.”
Having job costing and payroll in the same system also achieves a better completion rate, Lysecki said, warning that having too many systems or the wrong systems to do job costing is a big mistake.
Job costing should be done in accounting by entering every single transaction. This ensures bills are paid properly, staff is paid properly and sales are recorded properly. Doing job costing in accounting is the easiest place, Lysecki said, because it provides a complete history of all transactions. Anything else ends up as double entry and presents an opportunity for error.
“Job costing shouldn’t be something that owners and estimators and operations managers keep secret. That defeats the entire purpose. The people doing the work are the ones you want to show whether you’re doing a good job or not a good job. Good staff want to be recognized. We have problems finding and keeping good staff in this industry. Maybe job costing is one of the reasons why it’s so hard.”
Lysecki asked how good a worker would feel if the company he worked for had no real idea how good his work was, other than offering a subjective measurement of his worth by saying he’s good because he shows up to work on time.
“If you can’t tell someone how good he’s doing, it’s stressful as a good employee who works hard every day and doesn’t know if he’s doing a good job. If you don’t know if you’re doing a good job, you can bet the owner doesn’t know if you’re doing a good job.”
Good staff tend to leave a company if they have no idea of their worth and are better off working for someone who understands his worth, he said.
Bad employees, on the other hand, have a place to hide if there is no job costing, and will stay with an employer for as long as he’s permitted.
“Without job costing, without knowing how well they’re doing, you’ll probably let them stay longer than you should because you’re worried you won’t find somebody else who’s as good to replace them.”
Staying on budget
Staying on budget while on a job is vital and could prove to be costly to a company that goes even one day over budget. Lysecki said a two-week project that takes two weeks and one day to complete is likely to cost an additional $600 in payroll for a three-person crew. There are also fuel and equipment costs that won’t be recovered plus a lost day of billable time because the next project won’t be started on time.
“So the cost of going over budget by one day is about $4,500.”
He said a profitable company could easily become unprofitable if about 10 days are lost in one season. Getting the job done on time ensures there will be sufficient money left over at the end of the season to share with key people.
Job costing helps ensure work gets done on time and prevents over-budgeting. Lysecki said companies that don’t job cost tend not to be profitable.
Timely feedback ensures a more accurate payroll, he added, stressing the importance of verifying paper work on a daily basis.
“If it’s not done everyday, then you know people are guessing.”
When guessing is done, mistakes are made, he said.
“If you don’t get timely feedback, you have no idea how your job progress is. We have to have you doing your timesheets every day. It has to be accurate. If you’re getting your sheets every day, you’re demonstrating to your employees that it’s important to know whether we’re on time or not, and that’s motivating for everybody.”