Why poor job costing by your ERP can damage your business

Post By Charlie Heywood on October 9, 2015

Why poor job costing by your ERP can damage your business

Job costing: Why are my current business systems not working?

For companies that generate the majority of their revenue by servicing products or equipment, accurate job costing is absolutely vital for building a profitable and sustainable business.

Without it, the large number of factors involved – staff, materials, timescales, estimates and actuals – can quickly build up and obscure the most important consideration for any manager or business owner: how much are we making on this job?

Job costing for engineering services

The engineering services sector is no exception. A job costing process that genuinely works is both critical for survival and necessary as a foundation for future growth. The concept is simple – you must capture and account for every cost that goes into every job. Any costs that aren’t captured in full have to be absorbed by the business, and that will eat into your profitability.

Why then do many businesses in the industry still struggle to cost jobs accurately every time? Usually, it’s because the business systems they have deployed – whether ERP software or an accounting package – do not perform job costing adequately. And if they aren’t doing this, one of the most important business functions simply is not working.

The problem with accounting software

For companies using Sage, the job costing add-on was once an option for companies that wanted to extend the functionality of their accounting package. However, Sage announced in September 2014 that it had decided to withdraw Job Costing for Sage 50 – with support for the product only continuing until 2016.

This leaves SMEs facing a couple of fairly unappealing choices in terms of costing jobs with Sage – either invest in full-blown job costing software from the provider (a move that is prohibitively expensive for many smaller businesses) or add on a third-party job management solution from a provider like Protean.

Again, this approach can be problematic. Integration with the accounts package is likely to be very basic, while information may have to be duplicated between the two systems, increasing admin time and raising the likelihood of error. The presence of two completely different interfaces can cause confusion for users, while cost is also likely to be an issue if the two systems are supported by completely different suppliers.

Is ERP suitable for engineering job costing?

ERP systems are by no means ubiquitous in the engineering services sector, but neither is ERP solely confined to manufacturing, the industry it is most commonly associated with.

Some engineering services firms may have ERP as a leftover legacy system from an earlier incarnation of their business, and it’s likely that companies which both manufacture and service products use ERP as their central business system. Others may have been convinced to deploy an ERP package by a salesman who assured them it could ‘do everything’. Due to the far-reaching capabilities of the software, it’s fairly common for ERP to be presented as a cure-all or silver bullet.

If one of these scenarios sounds familiar to your business, you’re probably having some difficulty extracting a usable job costing function from your ERP system.

This can be explained by the close links between ERP and the manufacturing industry. Historically, the software was developed for businesses involved in traditional manufacturing, not project engineering – a sector with its own unique set of challenges.

Of course, this doesn’t mean an ERP system cannot provide adequate job costing for an engineering services business. In fact, ERP software like SAP Business One can be an excellent solution for companies with this requirement. It is simply a case of choosing the right kind of solution – and finding an implementation partner who knows what they’re doing.

Based on our experience over the years, we have put together a {{cta(‘cf2b22e0-f5e5-45d2-81e0-6b313b7a5e93’)}} on the best technological approach to job costing in engineering services below.