June 1, 2012

Jobcosting: the secret of successful landscape businesses


"Tell me how you measure me, and I'll tell you how to behave." — Eli Goldratt

The quote above tells us a lot about how human beings behave, whether it’s in school, in work, in life, or even in love. If 50 per cent of our school grade had been based on whether we came in the next day with our homework done, we likely all would have spent more time doing homework. But we weren’t marked on that; our marks were based on tests that we were given every so often. And, if you were anything like me, you never did your homework; but the night before the test you buried your head and tried to cram a month’s worth of work into about four hours of studying. Why? Because that’s how we were measured — test scores. Tell me how you’ll measure me, and I’ll tell you how I behave.

Is your company showing your employees how they are being measured, or are you all out playing in the dirt like it’s pond hockey, hoping for the occasional breakaway or glorious moment? Is anyone playing defence? Playing their assignments? Finishing their checks when the chips are down? If you’re not jobcosting and reporting results regularly, then you’re not measuring. If you’re not measuring, your company isn’t trying hard enough.

It doesn’t take a CFO to setup jobcosting. Anyone can do it. The secret is keeping it simple enough for it to work. Make sure you’re using an accounting package that can do jobcosting.  It’s worth the small extra cost.

Step one: Set up your accounting
First, decide what exactly you need to know. This is critical. But your decisions on how to track time and costs must not only fit your needs, fundamentally they must be simple enough for everyone in your company to use and understand.

If all you care about is whether the job made or lost money, then all you really need is one cost code to handle all your work. But most owners want a little more information. You probably want to break down your costs by work type. In Quickbooks, for example, these work types are set up as cost codes called Service Items. A sample list might look like the chart above.

Each job will have one (or more) of these cost codes assigned to the different tasks on the job. The cost codes help you standardize your work types from job-to-job, so that whether you call it a Front Patio on Job A, a Back Patio on Job B, or an Entrance Driveway on Job C, they can be viewed individually by job and their combined results can be viewed under 102 - Hardscape Installations.

It is extremely important to keep it simple! This is the golden rule of jobcosting and I can’t emphasize it enough. Jobcosting is only ever going to be as good as the information you get back from the field. In a perfect world, you might like 100 cost codes to track each different task, but your crews would never be able to track their time accurately against all those codes. With such a system, you would be worse off than you were without jobcosting—a complicated system that nobody actually uses will not be accurate!

There are two ways to get to the top of a cliff. You can climb the face or you can take the stairs. Sure you could climb the face faster, but only the most experienced climbers make it. The rest of us, being amateurs, would probably fall. It’s no different in jobcosting. Start simple. Take little steps. It takes longer to reach the top, but it’s so much easier to get there, and nobody gets hurt.

If you’re reading this, doubting that your foreman is going to be able to manage even a simple list of cost codes, then perhaps it’s time to question whom you have as foreman. Remember — all you are asking is which address they were at and which simple task-type the crew worked on. If they found their way to the jobsite in the morning, I’m sure they can follow this system.

How do they know how to track their tasks? Read step two.

Step two: Set up your estimates
If you think of your estimates as being just a price for your customer, you’re selling your company short. The estimate is one of the most important systems for any contractor. The estimate builds a plan for the job that is not only for costing and pricing the work, but for setting the production goals. A good estimate breaks down the hours, equipment, materials and subcontractors needed, and quantities for each. You can’t ask a crew to get a job done in $12 a square foot, but you can ask them to get it done in three 10-hour days.

A good estimate sets the goals for each job for your crews, especially hours. Assign each major work type on your estimate(s) to one of the standard cost codes you set up in accounting. No matter what you call the work on the estimate, it will be standardized by the cost code.

Print a version of the estimate for the crew. Don’t include prices, but do include the major work types on the estimate, the cost codes assigned to each, and the estimated hours for each. This is why it is so important to keep the system simple. One hundred cost codes mean the crews have to record their day’s work, hour-by-hour, against 100 different cost codes. The data won’t be accurate and you’ll know it, therefore you won’t use it.

So, if you’re working on a patio for the Jones Residence, the crew’s copy of the estimate needs to clearly show that the cost code for the patio is 102. As timesheets are filled out, the crew can mark these with the site address (or job name) and code 102. They know the cost code, because it’s on their estimate. All they need to know is what site they’re at and what task they’re working on. Simple.

Step three: Back to accounting
With the information coming back from the field recorded by job and code, accounting can enter all times and costs to both the job and the appropriate cost code. Simple, quick reports out of your accounting will show you exactly how many hours were spent at each job and on each major task. You can then compare it to the estimate, to make sure things are happening on schedule.

Vendor invoices should be reviewed by the owner, or someone equally ‘in the know,’ before they are entered into accounting. Every material invoice should have the jobsite written on it (the crew can do this), then the owner must write the expense account the invoice items should get booked to. This gives accounting the information they need to enter the invoice correctly.

So many owners look at their numbers at the end of the year, and know they are wrong — or don’t understand them. This is because someone else is deciding where expenses get allocated  It’s unreasonable to expect bookkeepers and accountants are going to be able to accurately allocate expenses the way the owner expects to see them. The owner must take a proactive role in coding expenses before they are entered.  Once they are coded, they can be entered accurately and when the end-of-year statements are generated, your company’s numbers will be accurate, and useful to you, because you were the one who classified them.

Step four: Share the information
Imagine school without tests. No report cards. No way to know what you were good at and what you needed to work on. They just asked you to do your work, and all you got at the end of the school year was an invitation back next year—or not. Sounds like a great place to have fun with your buddies, but that’s about it.

Stop and think about your company. What are your measurements? Who’s handing out the report cards? Who’s telling your staff when they’re winning and when they’re behind? Without a score, it’s no wonder most employees are in it only for the pay cheque and don’t respect the little details and mishaps that drive you crazy and drive your profits into the ground? Without any report cards, your company is just a great place that cuts them a cheque every two weeks, but not a place they’re invested in.

In order for jobcosting to have any impact on your bottom line, results must be shared, and shared regularly. Regular reviews clearly demonstrate the importance of getting jobs done on time (you’re measuring it) and they also will help you build systems that differentiate, evaluate, reward, and improve your staff’s performance.

Don’t treat your business like a hobby; contracting is like a sport. To win, and to build a team, you need to keep score. Done simply, any company can do it. I guarantee it will not only improve your estimating, but it will improve your field productivity, your profits, and the respect your employees have for their work.

No jobcosting? Your employees won’t see success as important. And without jobcosting, who are you to argue with them?
Mark Bradley is president of The Beach Gardener and the Landscape Management Network (LMN), based in Ontario.