Cost reporting is not as straightforward as when contractors first began automating the job cost function nearly 30 years ago. Today, contractors have numerous tools and tactics available, each with varying benefits and drawbacks to different users, to ensure the parties who need cost information and controls have timely and flexible access to them.
For purposes of this discussion, job cost can be defined as all activities centered around entering, approving, posting, tracking, and reporting cost on a given project. This includes but is not limited to budgets, change orders, committed cost, forecasting, productivity reporting, unit cost, and historical cost management.
Fragmented Evolution of Technology
Traditionally, contractors only had job cost applications in their accounting ERP system to help with substantial cost management functions. When PMs used to request monthly reports from accounting, costs may have been inaccurate or late. Further, PMs couldn’t access the data online, but instead had to request a printed report. During that early period, PMs would receive a static monthly report from accounting and often had difficulty checking the status of their job. They sometimes added their forecasts on the report and then sent it back to accounting for entry.
PMs eventually developed cost reports in Excel specifically for customers or owners that omitted some cost elements like change order data; these reports would contain less objective but still important data from the PM that accounting often didn’t see (e.g., pending change order values). However, this subjective input varied among PMs, leaving accounting and senior management uncertain as to how the jobs would finish. Accounting then had to piece together WIP schedules in a separate Excel spreadsheet, which the finance department would use in conjunction with financial statements.
The next generation of systems were project management solutions, which grew from having basic cost and budget capabilities to functions for forecasting and change order management. This enabled PMs to easily prepare month-end reports for owners that contained objective supported cost data as well as the more subjective data from PMs.
Similarly, field employees used to struggle with outdated productivity reports and would only see how they were performing long after they could do something about it. However, time card capture systems and field reporting components of estimating solutions emerged and allowed for daily reporting of hours, units, and equipment as well as instant comparisons to budgeted values for productivity.
Estimators needed job cost reporting for timely feedback on their performance from the field (e.g., were their productivity rates correct?). But this was not always easily achieved if estimates were adjusted before they were entered into the job cost system as a budget. Many contractors kept a ledger book with historical unit costs to use in future estimates.
As you can see, the evolution of technology improvements did not happen smoothly or in harmony, leaving many contractors with different levels of disconnected solutions and some still relying on spreadsheets for specialized reporting.
With cost reporting and control more important than ever and many people needing access, it is important that contractors understand the pros and cons of each approach and develop a long-term, comprehensive strategy that encompasses all parties – field staff, estimating, customers, PMs, and accounting staff.
Integrated Project Management Solutions
Arguably, the first offline (i.e., not in an ERP system) cost management capability existed in standalone project management solutions. These tools featured rudimentary tables for storing budgets, commitments, actual costs, and sometimes forecasted cost to allow PMs the flexibility to provide a cost summary specifically for the owner. The reconciliation with accounting’s version of cost typically occurred later the following month.
With these solutions, PMs could work mostly within a single system. However, early versions lacked units and man-hour tracking, and were not suitable for contractors that self-performed a portion of their work. Since then, developers have built in more sophisticated capabilities and a better audit trail to eliminate some of the prior issues. Many now have integration capabilities that make the transfer from the ERP system more automated and transparent.