Job costing isn’t just a back-office function—it’s the foundation of a financially healthy construction business. When done right, it ensures projects stay profitable, resources are used efficiently, and every dollar is accounted for. But when job costing is inaccurate or incomplete, the effects can be disastrous. Poor job costing can distort financial visibility, throw off bid calculations, and erode your bottom line – ultimately putting your entire business at risk.
Let’s take a look at some common job costing mistakes and how they could be impacting the financial health of your business.
1. Paper-Based Time Tracking
Paper-based time tracking systems require a lot of manual effort to enter and process data. Workers often find the paper process inconvenient and cumbersome to fill out in the field, plus they usually have to spend extra time driving to the office to turn in time sheets. This can lead to delays and cause payroll teams to spend countless hours chasing missing or incomplete time sheets.
Once teams have the information they need, they must manually enter it, often in more than one system. This is not only time-consuming, but it increases the risk of errors. Between the lag in entering and approving time and the increased risk of errors, teams are left with data they can’t rely on.
Having reliable data is a necessity, especially when it comes to labor costs, which make up a significant portion of a project budget. Without reliable data you cannot track costs as they happen which makes it harder to catch potential issues before they become a bigger problem. And when time is entered manually, delays in data entry make real-time insights impossible, leaving you blind to cost overruns until it’s too late to take corrective action.
Long-term Effects
When your teams rely on bad data, it not only impacts the current project, but it lays a shaky foundation for your historical job cost database. Not having a reliable job cost database makes it harder to bid accurately on future projects. And the lack of detailed, accurate data makes it nearly impossible to identify which types of jobs are most profitable for your business.
Plus, as your business grows, the paper system becomes an increasing bottleneck, preventing efficient scaling of operations. Your administrative overhead costs will increase as more staff are needed to process growing volumes of paperwork. Paper systems also make knowledge transfer more difficult, so when team members leave the company, crucial institutional knowledge often leaves with them.
2. Incomplete Labor Cost Allocation
Another common job costing mistake is incomplete labor cost allocation. It is critical that calculations consider not just direct labor costs but also include indirect costs such as taxes, benefits, and workers' compensation and account for the contributions of salaried personnel as well. When these costs are not included, it creates a disconnect between payroll expenses and job cost accounting, making it difficult to reconcile actual costs with estimated ones. And the growing gap between perceived and actual costs makes it nearly impossible to have real-time insights into project performance.
Long-term Effects
The long-term impact of incomplete labor cost allocation can be devastating to your bottom line. When you’re not accounting for all labor cost components you could end up considerably underpricing bids. Profit margins gradually erode as projects that appear profitable on paper turn out to barely break even or lose money once all costs are eventually accounted for.
When overhead costs are misallocated across projects, you can’t gain a true understanding of project performance. The effects of incomplete cost data snowball as teams struggle to make strategic decisions about which types of projects to pursue because they don’t have a clear picture of which projects are the most profitable. This ultimately leads to cash flow problems and decreased profitability.
3. Inadequate Work Breakdown Structure
A well-designed work breakdown structure (WBS) is crucial for accurate job costing as it allows you to see exactly where your labor and materials spend is going. Without a proper WBS, you’re operating with significant blind spots in your project tracking. If workers are allocating their hours to general jobs instead of cost codes tied to specific activities, project managers cannot gain visibility into where time is actually being spent and it makes it harder to accurately assess progress across different project phases. Potential issues can go unnoticed or not be found until it’s too late, causing delays and cost overruns.
With complex tasks spanning multiple categories, construction costs need to be tracked with as much detail as possible. Without an adequate WBS a worker may log 8 hours of time to “Project #1.” You have no way of knowing what specific task they were working on unless you dig through reports, assuming they are up-to-date. However, when you have an effective WBS, you are getting a more granular level of detail. For example, those 8 hours might be logged to “2.1 Footings,” which gives you insight into the labor cost associated with footings, so you now have precise data on how much the footings actually cost versus what you estimated.
Long-term Effects
Over time, an inadequate work breakdown structure creates systemic problems throughout the organization. Without granular insight into the true costs of different types of projects, it is difficult to understand which activities are profitable and which are causing losses. Instead of taking a data-based approach, tasks such as resource allocation become a guessing game, leading to inefficient use of personnel and equipment.
The lack of detailed historical data severely hampers your ability to optimize operations and often causes projects to start off on the wrong foot. Your bidding accuracy suffers as estimators lack reliable historical cost data for specific types of projects, leading to either overbidding and lost opportunities or underbidding and eroded profits. It becomes difficult to get back on track when you don’t have the insights to identify where improvements are needed most.
4. Poor Integration Between Systems
When software such as time tracking, payroll, and accounting aren’t integrated, teams must manually enter the same data in multiple systems. The time-consuming and error-prone nature of manual data entry often leads to inconsistent data across different systems that leaves teams guessing as to which numbers are correct. Your back office must spend countless hours reconciling discrepancies instead of focusing on more strategic activities.
Poor integration also causes roadblocks when it comes to reporting as data must be manually compiled from multiple systems before any analysis can occur. There’s no way to get real-time visibility into job costs so issues often go undetected or aren’t discovered until it's too late to take corrective action.
Long-term Effects
When there’s a lack of integration between technology solutions, you’re left with data silos that create a host of issues such as miscommunication between teams, costly errors, and project delays. Without access to current, accurate data, teams can’t make timely strategic decisions. These effects compound and make it increasingly difficult to scale operations efficiently and ensure compliance with evolving regulations as your business grows.
Poor integration also leads to wasted time. Teams spend hours manually entering, reconciling, and double-checking data instead of focusing on higher-value work. Project managers struggle to track down information, while payroll and accounting teams constantly fix discrepancies that shouldn’t exist. Over time, this inefficiency slows down business operations, increases labor costs, and eats away at profitability.
Fragmented systems also expose your business to greater risk in areas such as security, workforce management, and disaster recovery. Without secure, cloud-based solutions data is more vulnerable to loss or cyber threats. And as the industry increasingly relies on connected tools, businesses that lag behind will struggle to attract top talent and win new projects. In the long run, this technological gap can severely impact everything from employee satisfaction and client relationships to productivity and profitability.
How to Improve Job Costing
Success in construction job costing requires a comprehensive approach to system and process design. Implementing modern, integrated solutions, including construction-specific digital time tracking, payroll, and accounting software eliminates unnecessary manual data entry and delivers the real-time data and insights you need in order to run a successful business.
By investing in proper job costing systems and processes, you can reap both immediate and long-term benefits, including improved bidding accuracy, better resource allocation, and stronger profit margins. Plus, it helps build a strong foundation that sets your business up for future growth.
Miter's all-in-one platform helps solve these construction job costing challenges. By combining payroll, HR, benefits, and workforce management and integrating seamlessly with your ERP, Miter eliminates double data entry, streamlines communication, and delivers real-time insights.
Ready to streamline job costing? Visit Miter today to see how our construction-specific solution can take the frustration out of job costing.
