Job costing is the calculation of the cost involved in particular jobs or projects. This includes things like building and construction jobs, or the manufacturing of goods which are produced in batches, however the same principles can be applied to any kind of job or project in order to ascertain a rough expense and overheads.
Job costing is a highly useful process that then allows us to look at the realities behind a certain job or idea and that enables companies to better mobilize their workforces in the correct ways. At the same time it enables you to more accurately report on costs and on amounts lots and gives you important statistics to work with to improve the flow of your business.
Say for instance that you are a construction company and you are given a job to do. An inexperienced sole trader might simply agree to doing this job at a set cost. While this would hopefully be a good thing normally, in some cases the job might be simply too expensive for that person to do for the price that they charge. Thus they may end up then not making a profit but in fact losing money as a result of not using job costing to first ascertain the cost of the job.
Of course many companies get around this simply by asking the client to foot the bill for the cost of the job. But does that let you off the hook with regards to job costing? Not at all of course. For instance you need to be able to give your client at least a rough estimate of the cost of the job or otherwise they may be unhappy when they receive the bill. At the same time it's highly important to make sure that you have the best job costing in order to enable you to know how much money to put into the work up front and so that you have the available resources to do so.
Another reason that job costing is still important is that you will at some point need to give your client the bill and this will mean you need to have tallied the amount it cost. Any error here could end up with your company losing money, or with your inadvertently swindling the client which would cause your reputation to take a huge hit.
There are other issues involved with job costing too. For instance you also need to make sure that you know the amount a job costs so that you know where to direct your workforce. It may be possible for instance to decrease the job of a cost by directing more of your workers to that project and thereby getting it done quicker – but without job costing how would you know which jobs to prioritize in this respect?
Furthermore you can use job costing in order to make improvements. Does the amount you predicted correlated with the amount it actually cost? Is that a satisfactory amount?
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If you want your staff to be more cost effective then one thing you might want to improve is your job costing procedures. Effectively estimating time and costs it what workforce management is all about.
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