Even though the construction industry is the backbone of developed countries, many of them don’t last in business for more than five years. Only around 36.4% of construction companies reach their fifth business year.
Considering this abysmal rate, it’s not surprising that the construction industry has faced many challenges. Most of the time, challenges are born from a contractor’s inability to manage the overall costs of a project. And even if they do understand overall costs, they may lack the know-how of achieving sufficient profit margins. That’s where cost code tracking comes in.
Regardless of your business’ size, as a contractor, you’ll need to understand the role of cost codes in the construction industry. Leveraging cost codes help you manage the outflow spent on a project. This can include the expenses for documentation and tracking.
With technology, generating cost codes no longer has to be a tedious task. Many reliable companies, including SmartBarrel, are normalizing convenient tracking for construction cost codes to monitor labor costs.
We’ve compiled here some tips to help you get the most from cost code tracking. But first, let’s go over what cost code tracking is and how it works.
What is construction cost code tracking?
Construction cost code tracking uses a database to track construction cost data. Contractors can use this database to generate cost reports, determine project profitability, and analyze change orders (as well as other related projects).
The Construction Specifications Institute first established the concept of cost codes. However, construction companies don’t have to necessarily rely on their pre-existing structure and can generate their own cost codes.
These codes are the most effective solution for organizing every project detail. It also provides the company insight into their annual spending and deciding on whether it’s worth it to take on a project.
9 tips for cost code tracking in construction
1. Have a set of defined cost codes
Try to have a set of defined cost codes based on the type of work at the construction site. For example, you might have a cost code for drywall, another for framing, another for painting, and so on. When you do any of these jobs, you can easily track them.
2. Make use of construction software at work
In the US, the construction industry comprises 10% of the total GNP. However, the use of technology in this field is still limited. Many construction companies are still relying on manual methods for project management.
As a construction manager, you can simplify tracking your cost codes. Construction management software can help you do so without any hassle.
3. Ensure proper documentation
Suppose you have a proper set of cost codes and don’t know how to report them. If this is the case, these cost codes are of little to no use. In short, you’re not going to obtain any impactful insights here. Ensure you document the right kind of cost code for each of the on-site tasks.
4. Include change orders
Not being able to manage change orders can contribute to the negative productivity of your construction firm. It’s better to address change orders to avoid disturbing the workflow altogether.
5. Review reports regularly
Integrating cost codes and forgetting about them is the most common mistake contractors often make. Make it a habit to check through the reports on a weekly or monthly basis. This will help you with making adjustments accordingly.
6. Time tracking
Another helpful trick is to use time tracking solutions on the worksite. Here, you can determine which tasks are taking longer to complete and how much you spend.
7. Monitor cash flow
Cash flow provides the necessary fuel to any business. As a contractor, monitor the billings closely to ensure you get the correct payment amount.
8. Do not overlook indirect costs
To get in-detail job costs, try to include indirect costs involving the expense of the management team, equipment rentals, and even travel. By tracking these expenses, you can estimate the overall budget for a specific project. If these costs go unnoticed, the firm may lack the funds to cover direct costs.
9. Focus on job costing
To have a better look at what you’re spending on a project, use insights from cost codes to further aid you in controlling costs and increasing productivity.
Benefits of using construction cost codes
Here are some of the most common ways you can benefit from construction cost code tracking.
Easy to analyze cost
Manually calculating costs may allow you to determine the overall project spend. However, it’s more time-consuming and error-prone. Cost codes can be a fast way to analyze the cost of your project. From cost codes, you can easily gauge how much money you’ve spent and compare it to your initial budgets.
Improved project management
Managing a construction project involves reporting activities, managing costs, and more. By having cost codes for each of these tasks, project management will become much easier to handle.
Identifying profit is simple
Cost codes make it easier to identify where you are making a profit and how you can further progress. You can get an idea of cost management at a quick glance.
When you’re aware of the projects you’re making a profit from, you can avoid the ones that are performing poorly. This way, you will work towards maximizing your firm’s efficiency and make better money from it.
How many construction cost codes does a firm need?
A construction firm might generate a lot of cost codes, which makes it much harder to manage them. To have cost codes add value to your business, it’s crucial to use simplified cost coding. Make sure your system has cost codes that you can access without spending hours on end searching for the right one.
The bottom line
Construction cost codes can help in bringing a positive change in the industry. Individuals may take some time to become familiar with cost code tracking; however, the benefits they will receive in return can be quite worthwhile.