If you make a profit your a contractor …

If you make a loss your a charity …

Profit is the Revenue Earned from a contract less the Cost Incurred to earn that revenue.

The Total Value of the Contract is known. Where a job extends over more than a single reporting period this should be adjusted to match the costs incurred to date. How this is done will be the subject of another post as we are concentrating on cost.

Measuring Cost Incurred creates the following problems:

Delay. Recording the actual cost against a job is delayed by the time taken for transactions to be recorded. Labour may only be processed fortnightly or even monthly. Subcontractors, plant and materials may have to wait until invoices are received.
Attribution. Is the cost incurred directly attributable to a job or is it an indirect cost that should be part of the indirect costs allocated to the project.
Determination. Significant job costs are calculated (determined) rather than directly the result of a known transaction. Internal Plant & Equipment charges, Labour cost, Project Management Costs, etc.
Measurement. When determining Job Cost during a project it is necessary to measure the what proportion of the required scope has been delivered. The accuracy of this measure is critical to the value of information provided.

So what are the attributes of leading practice Job Costing ?

No Delay. Costs incurred determined immediately. It has been done. It should be done.
Clarity of direct and indirect costs. Clear determination of cost attributable to a job. These rules should be the same as those used in estimating.
Determination. Charges that are determined should be consistently determined. Confusion can arise if rules are not consistently applied, ie who bears the float cost of plant to and from the job. Where a monthly charge is applied, when is is incurred.
Accurate measurement. The Work Breakdown Structure is determined to facilitate accurate measurement of work performed.

A Project Manager can only influence what happens next. In order for a job costing system to aid the decision making process it must be timely, accurate and informative. Without such a system, focus is on delivering the required outcome rather than delivering a profit.

Focus on Outcomes specialises in tuning accounting and operational activities to deliver leading practice job costing systems.