Track Bid and Budget Data To
Avoid Cost Overruns
Cost overruns are a
perennial drain on profits. The culprits can range from design changes to
weather-related delays, from do-over work to unanticipated increases in the
cost of raw materials. Regardless of the source, the end result is less
money for the contractor. While there are no guaranteed methods of
preventing cost overruns, contractors can reduce the chances that
unanticipated extra costs will adversely affect their bottom line by making
good use of cost tracking tools.
Delving into the Details
Project accounting and project control software can help contractors keep
projects on budget. Instead of waiting until a job has been completed to
find out if it was profitable, contractors can access real-time data showing
project costs. Tracking detailed information broken down by cost codes helps
contractors identify where and how cost overruns are occurring. By quickly
taking steps to correct developing problems, contractors are better able to
get a project back on track and stay within the budget's guidelines.
Tracking Change Orders
Too often, contractors are not fully paid for all of their employees' labor
or for the use of equipment, tools and material needed to complete change
orders. Using software to identify and document change orders, assign
appropriate charges to the required changes and record when payment is
received can help eliminate uncertainty and ensure that the contractor is
paid on time. This is particularly relevant since many contracts have notice
clauses that require the contractor to notify the owner of the impact and
cost of additional work within a specific time frame. Promptly billing for
change orders can help minimize cost overruns and protect profit margin over
the life of a project.
Preparing More Accurate Bids
Having verifiable job cost data allows contractors to more easily determine
whether their bids on past projects resulted in the projected profit margin.
With detailed information, contractors can identify which parts of a project
conformed to bid projections and which went off budget. Future bids on
similar projects can be refined to minimize the possibility of overrun
problems.
Job Cost Reporting
Job costing systems vary in their capabilities and complexity. Basic
features to evaluate when comparing systems include:
- The level of job cost
detail the system can track
- Standard reports and the extent to which users can create customized
reports to meet their needs
- Integration with other software (project management, estimating, etc.)
Ultimately, the best system is one that a company can use effectively to
produce the critical information necessary for making smart, timely business
decisions. We would be happy to help you analyze your company's specific
needs.
Members of our Construction & A/E Team have a depth of knowledge and
many years of experience in a variety of information solutions for
construction, architecture and engineering firms. Please
contact us today.
Work-In-Process is provided by
Somerset for our clients and other interested persons upon request.
Since technical information is presented in generalized fashion, no
final conclusion on these topics should be made without further review.
For additional information on the issues discussed,
please contact
Ken
Hedlund,
Jay Feller,
Steve George,
Chris
Mayfield or
Rebecca Ogle
of our
Construction & A/E Team.
This document is not intended or written to be used, and cannot be used,
for the purpose of avoiding tax penalties that may be imposed on the
taxpayer.
Somerset CPAs,
P.C.
3925 River Crossing Parkway, Third Floor
Indianapolis, Indiana 46240
317.472.2200 • 800.469.7206 • FAX 317.208.1200
www.IndianaConstructionCPAs.com
info@somersetcpas.com
