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The Dirty Little Secret They Don’t Tell You About Job Cost Accounting

Job cost accounting is the most accurate way to estimate projects. But most service professionals are working with horribly flawed figures.

Steven Burns, FAIA spent 14 years managing the firm Burns + Beyerl Architects. After founding his own software company, Steve took his management expertise to BQE Software, where he is refining their business strategy and product development for the company’s groundbreaking project accounting solution, BQE CORE.

How much did you spend on the last project you completed? All in.

  • Did you account for every hour you spent talking with the client?
  • Did you include the costs for the dinners that were delivered to feed the team during those late-nighters?
  • Did you include the costs for all the time you spent trying to land that project, not to mention those dinners and drinks you spent wooing the eventual client?
  • Do you have all the costs related to car travel from your office to the client’s, or to the project site?
  • Did you record all the printing costs from your in-house printers?
  • Do you know how much of your office’s overhead time was directly associated with the project? How much time was spent creating their invoices and then collection on them?
  • Did you include all those hours you spent talking to your consultants and coordinating their proposals and work?

If the answer is “yes.” to all the above questions, you’re a stone-cold liar.

You’re working with flawed figures

After 20 years working with service professionals from architects to engineers, from accountants to lawyers, and countless, miscellaneous business consultants, there is one thing I can be sure of: when they tell you they have a good job cost accounting system and know how much they spent on a project, a matter or an engagement, they are working with horribly flawed figures.

They are missing so much data that the business decisions they make based on their job costs are, at best, very cloudy and, at worst, making them inappropriately high-five each other. And this is that dirty little secret. Your job cost accounting system is inadequate. It’s a partial story. It’s like you have no peripheral vision and are about to be clobbered by a runaway truck that you can’t see coming.

Triple-entry accounting

Granted, there are job cost accounting systems out there that allow firms to take all their vendor bills and associate these to their projects. This is often referred to as triple-entry accounting. Not only do you have a debit and a credit account associated with the charges, but you also have a client or a project as well.

In most systems, the effort to connect these to your projects and clients is tedious so most firms just bury them. They might only track the costs that are billable back to the client and take all those other costs that are part of their general services and allocate these to general office overhead or cost of services.

The problem is that even these systems that make it possible, don’t make it easy. If it’s not easy, it’s not happening.

Full cost visibility is essential

Is it a bad thing not to have the full picture of the costs associated with each job?

From a company level, no. Full cost visibility in itself has no bearing on the overall Profit/Loss for the firm. But if you’re looking for actionable information and want to find the source of what’s really driving the profits or losses, then the answer is yes, this is bad.

If all you have is a thermometer that indicates you have a fever, but you have no way to figure out what inside your body is actually causing that fever, you don’t have an effective method for fixing the fever. If you were experiencing pain but had no way to describe to the doctor where the pain was coming from, you’ll be told to take two aspirin and call the Doc back in the morning.

Personally, I want every little cost that is being paid by the firm to be directed at something.

Utilization for everything in your office

Think of this as “utilization” for absolutely everything in the office and not just your employees. If you have a bunch of costs listed under “General”, it’s like having a junk drawer in your kitchen that’s filled with scissors, thread, unlabeled keys, pens of every variety, strange charger cords that don’t seem to fit into any of your devices, varieties of rolls of tape and on-and-on. You just open that drawer, roll your eyes and think “one day I’m going to clean this up.”

In the professional services sector, there’s really nothing on the market that makes true job cost accounting possible and as effortless as BQE CORE. That’s because CORE makes it possible to link everything to a project which automatically links it back to the client. There are clear lines that can be traced from every dollar spent back toward every dollar earned and anyone along that path, from the client to the consultants, to the employees to the vendors is easily identified from a cost and revenue perspective.

If your firm is hoping to have salient, verifiable and quantitative data, you must be able to identify which:

  • Clients bring you profits or cause you to take losses (impacting your cash flow)
  • Project managers are truly effective
  • Employees are contributing to your bottom line

You owe it to yourself and your firm to look into implementing a robust job cost accounting system that makes collecting this information frictionless and returning actionable information about everyone and everything effortlessly. You owe it to yourself to compare your current system, or anything your considering implementing to BQE CORE.

Click the link below to learn more about job cost accounting and securing the visibility you need to increase your profitability.

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