The Importance of Labor Tracking and Job Costing in Construction

Effective labor tracking and job costing are crucial for managing budgets, improving project efficiency, and generating more revenue, especially in the construction industry. From trying to accurately estimate project costs, to navigating complex compliance regulations around union agreements and labor laws, efficient job costing greatly impacts your profit and loss.  

Learn how to overcome the unique challenges of job costing in the construction industry, as well as the best way to track costs, and ensure profitability in your construction business. 

What is Labor Tracking in Construction? 

Labor tracking is the process of accurately recording and entering WMS (Work Method Statement) information into a database (often a spreadsheet) that represents what an employee or subcontractor did during their shift. In construction, this is critical to overall profit generation and difficult to do right due to managing multiple job sites, job codes, and equipment to track and distribute.  

Labor cost tracking heavily impacts the efficacy of job costing as it's one of the easiest areas for overrun to occur due to the high risk of inaccurate data. Aside from the resources and time required by your payroll specialist trying to manually collect timesheets, it creates plenty of room for errors. According to recent stats from G2.com, manual data entry results in 40% of payroll errors. 

Add onto the fact that you’re not just tracking your employees, but also subcontractors, and it becomes crystal clear that manual data entry creates far more risk than it does reward. 

The best way to improve your job costing processes is by integrating a digital payroll system that ensures accurate wage calculation and labor costs. 

Benefits Of Accurate Labor Tracking Financial Management  

Having the financial positioning that offers flexibility and consistent growth is much harder to achieve when you’re dealing with poor-quality data. Clear and consistently updated data can give your company a competitive advantage that makes you more resilient and more profitable than competitors who don’t put systems in place for consistently accurate labor tracking. These are just a few of the benefits of accurate and consistent labor tracking. 

• Enhanced budget control and cost management. The first, and most obvious, benefit of accurate labor tracking is the improved clarity and control over costs, which makes it easier for your projects to stay on budget. 

• Invaluable software integration. Integrating a labor tracking software can even offer the additional benefit of centralizing all labor tracking data into one digital location, creating the most accurate picture of your financial status on each project. 

• Better able to maintain compliance enhanced accuracy. Aside from making the most out of every dollar, accurate labor tracking also protects your business when it comes to compliance and regulation (such as observing labor laws, union agreements, and safety regulations).  

• Avoid cost overruns with real-time monitoring. When you have reliable labor tracking processes in place, you can monitor how costs are adding up. This gives you a better chance of preventing cost overruns and finding ways to save in future products. 

• Improved scheduling. Labor tracking also gives more insight into how each job is progressing, enabling you to more effectively schedule timelines and prepare for additional projects to make sure your resources and employees aren’t spread too thin. 

• Increased productivity due to reduced idle time. Labor tracking helps decrease idle time because it’s much easier to allocate equipment and workforce numbers effectively. A digital platform makes it easier for job site managers to update asset availability, regardless of their location or time, so your team always has up-to-date information. 

What is Job Costing, and Why it Matters  

Job costing is the process of estimating (projecting) the cost to complete a construction project and tracking expenses to make sure you’re aligned with predictions.  

Job costing in construction is broken down into three key segments: 

1. Direct Costs such as materials purchased and labor costs invested. 

1. Indirect Costs such as insurance, payment on a truck, or even workers comp. 

1. Overhead Expenses such as payments for software tools. 

 Accurate and consistent job costing in construction plays a huge role in your profit and loss because you can: 

• Quickly and easily notice cost overruns. 

• Use past job costing to help you better predict future project costs and bid rates. 

• Define a clear timeline, stay on schedule, and stay aligned cost-wise. 

• Mitigate risks more effectively. 

• Accurately project profitability per project. 

• Make more informed decisions and position yourself for growth. 

The more frequently and more detailed your job cost tracking is, the easier it will be to identify where you went over budget. 

Benefits of Accurate Job Costing Profitability Analysis  

The key to running a thriving business is profitability. Having a clear picture of your financial wellness is crucial to consistent growth. You can enhance your job costing system by centralizing your data in a digital platform, which makes analyzing your incoming and outgoing expenses easier and helps you plan for the future. Here’s how: 

• Improve the accuracy of predictions. Increased oversight makes it easier to determine the profitability of each individual project.  

• Easily identify ways to optimize costs. Real-time, accurate data helps you identify high-cost areas and where you can implement cost-saving measures. 

• Increase bidding accuracy and efficacy. Having high-quality historical cost data helps inform future project estimates, which gives you a competitive edge in the bidding process.  

• Better resource management: Optimizing resource allocation based on reliable and up-to-date cost data ensures efficient labor, materials, and equipment usage.  
  

Tools and Technologies for Labor Tracking and Job Costing Construction Management Software  

Integrating dedicated resource management software for your construction company can be an effective method to optimize your labor tracking process. However, using the wrong tool can actually hurt efficiency. To help you get started in your search, look for these features when choosing a cost management software. 

• Be industry-specific: The construction industry is uniquely complex. Intense regulations and complicated job coding make it critical to choose a software built by construction professionals for construction professionals. 

• Offer a comprehensive suite of tools: The accounting system you choose needs to cover all your bases, whether it be job coding and time tracking, document scanning, or even workflow automation. 

• Be user-friendly and easy to implement: It should be easy and intuitive for everyone on your team to use, offer a great customer support experience, answer questions, and support effective integration. 

• Doesn’t force you to choose: Even if you aren’t handling everything manually, the right payroll software should seamlessly integrate and compliment any current ERP software (like Sage, Autodesk, or CMiC) you have.  

For example, hh2 back-office cloud platform unifies your stack and helps eliminate information silos and bottlenecks. 

• Offer real-time data synchronization: Making profitable job costing projections depends on having comprehensive and up-to-date data, so your software needs to offer real-time analytics for accurate labor tracking.  

• Mobile-device compatibility: Your job site managers, workers, and subcontractors may move to multiple job sites per day, making it necessary to find a tool that offers mobile and web-based solutions that support on-site and remote communications.  

• Includes automated reporting and analytics: Choose a software solution that generates detailed reports for financial analysis and decision-making, so you’re empowered with analytics to identify trends and improve project management.  

Best Practices for Effective Labor Tracking and Job Costing Regular Updates and Audits  

No matter the tools you use, or the size of your construction firm, there are best practices you can put in place to optimize performance in your job costing procedures. The good news is that they can all be implemented, no matter your current tech stack. 

• Ensure labor rates, cost codes, and project data stay up-to-date for accurate tracking. 

• Conduct periodic audits to maintain data accuracy and integrity throughout your back-office ecosystem.  

• Establish a reliable and detailed record-keeping process that maintains comprehensive records of direct costs, indirect costs, overhead costs, and all project expenses. (Learn more about how to accurately calculate your labor costs here). 

• Use historical data for continuous improvement of your job costing predictions, bidding strategies, and general financial planning. 

• Implement tools that enable effective collaboration between field teams and back-office staff, as well as establish clear communication channels for efficient data sharing.  

The right technology can revolutionize the way you run your construction business. Book a demo today and learn how hh2’s back-office solutions can help you track labor and job costs more efficiently.