Is job costing the key to growing your engineering services?
It is universally acknowledged that a business cannot succeed – i.e. grow – without an accurate picture of how much it costs to serve its customers. Despite this understanding, many companies still neglect the process of job costing.
When the contracts are rolling in and everything looks good on the surface, it’s easy to forget about the detail – bosses don’t always think, “Never mind how much they’re paying, how much will it cost me to provide the service?” Many small business owners start out using little more than their intuition to assess project costs, timescales and profitability. This approach can be adequate in the early stages, but often fails as an organisation grows and tasks are delegated across more people.
Companies in certain sectors may just about get away with a half-hearted approach to job costing. However, companies in engineering services and other industries that do project-based service work definitely cannot. This applies to any scenario where technicians are out in the field all the time and pricing must account for both the time and materials they use to complete the job.
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Often, the presence of a management team that doesn’t understand the critical nature of costing jobs for service industries – or an owner who has relied on gut feeling for too long – can be the reason that firms in this sector go out of business.
Job costing for engineering services
We know the importance of job costing for engineering services companies because we’ve worked with several of them to provide business systems that meet their specific requirements. Often, they approach us because their current system, ERP or otherwise, does not provide the kind of job costing functionality they need to repeatedly cost jobs accurately, make the right pricing decisions and ultimately become a more profitable business.
‘Project engineering’ is really an umbrella term for a diverse range of businesses – including industrial machine manufacturers, and those who support and service food machinery, refrigeration, heating/ventilation equipment, elevators and turbines.
Despite the differences between these businesses, they do share common challenges – all of which can make accurate job costing a huge challenge:
Scheduling field engineers
Your engineering company probably has a team of field engineers to install and service equipment at customer sites. Ensuring this workforce is utilised as fully as possible – and at the right margin – is a complex task, particularly when the environment changes regularly.
Flexible invoicing
Flexible invoicing is an absolute must for project-based work. Commercially, you may take the decision to agree each project with a range of individual moving parts that need to be handled by your accounting system. Some will require time and materials, fixed price and perhaps even contract milestone invoicing. Many ERP systems and project management tools lack the functionality to support this way of invoicing customers.
Purchase requisitions
Managing purchase requests can be very difficult and time-consuming with a geographically distributed workforce. Your purchasing team’s objective is to ensure that components/services are bought at the right price to meet the budget of the project, so having a system with the ability to track purchase quotations means you can keep track of suppliers.
In each case, it is impossible to assess the profitability of ongoing projects on a day-to-day basis without effective costing processes in place. Most engineering services companies recognise this fact, but many are unsure of the best solution.
Our experience in the sector has enabled us to identify the {{cta(’08a6ae36-e615-403d-ad69-7577d538b5c3′)}}. It isn’t accounting or project management tools, but neither is an off-the-shelf ERP system the answer. Click below to find out more.
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