Be Right on the Big Stuff (Secrets of Job Costing)
Being right on the big cost centers makes being wrong once in a while on the little things not very painful. With this statement, the Concrete Sherpa is sure to raise the neck hairs of the cost accounting purists out there.

But let the Sherpa explain:
A concrete construction project is composed of many costs: nails, form lumber, sand, gravel, string line, concrete, boom pumps, rebar, etc. And it’s true that a solid estimating strategy needs to be capable of capturing all of the costs that go into a project. But there are going to be three or maybe four areas that comprise 75 percent of your costs that need to be watched with an eagle eye. Show me a concrete company that is pouring the concrete at or under budget, and is beating the labor bid, and I’ll show you a concrete company that is making money. These companies know each day the quantity of concrete each pour should take and they know what labor they should be expending on the job. If they get these two things right (because they often make up 60 percent or more of the cost) they are doing well. Often the concrete and labor are the main costs (usually 3-7 times greater than the next tier of costs). Then the second tier of costs is the gravel, rebar, form material, hardware, and equipment rental. Finally there are going to be very small items. So focus daily on the big costs, take a look periodically at how you are doing on the second tier of costs, and once in awhile look at the small stuff.

Often the concrete and labor are the main costs (usually 3-7 times greater than the next tier of costs).

TIP: Know each day how you did on concrete for each project. If the job was supposed to take 110 yards- how much did it take? Just by your daily inquiry, your crews will realize the importance, and your concrete pours will start to hit budget and improve. Nobody wants to call the boss and report the job that was supposed to take 110 yards took 131- because the grade was too thick, or the footings were too deep, etc. - you’ve heard it all, right? Using this system, if the backhoe operator digs the footings too deep you’ll start to hear about it before concrete is ever poured- and you can get this problem backhoe operator on track for future jobs, or find a new backhoe operator.

Be Right on the Big Stuff -Real World Example

High Grade Form, Inc. pours residential house slabs in Southern California. They pour an average of 15 house slabs per working day (typically the 5 house slabs are on 3 different sites) and know how much concrete each house should take. The person who sets up all the concrete pours knows how much concrete each pour should take and keeps track of the estimated to actual. If a 5 house pour goes 6 yards under- great. Don’t spend much time thinking about it. But if a 5 house pour goes 10 yards over- they want to know why the concrete was off. At least they know about it that day, feathers get ruffled, and they figure out what happened so it doesn’t keep happening.
Why does this matter? If High Grade Form pours 300 houses in a month and goes 1.5 yards under budget per house, that comes to 450 cubic yards saved. At today’s concrete price- that is a chunk of saved money. And this is why you should spend the bulk of your time watching costs on the costs that matter. True, your cost on string line might be interesting- but you won’t ever save $36,000 in a month watching your string line expense.

The Alternative to Focusing on the Big Stuff
One concrete contractor got carried away with job costing to the extreme, literally where a truck would come back to the yard with some leftover materials from the job and every piece of lumber would be counted and inventoried (I think this contractor has hired a management consultant). Huge job cost reports with 100 line items would be printed each month documenting every expense the job had incurred. The reports were so huge, in fact, that nobody ever looked at them or put them to use. Without a lot of effort you can get yourself into a situation where you’re spending $10,000 to save $500. That’s a big risk to your company. So strongly consider finding your main two or three cost centers and place extreme focus to make sure you’re doing well on that. Don’t completely ignore the other cost items- instead drop back to a lesser degree on the other stuff once in a while, making sure you’ve got it right and then roll on with your business. Focus on the few things that are really going to make a difference to your results.