By Mark Porter
In any business knowing your costs is important. After all isn't Profit = Sales - Costs. If you don't know your costs how do you know your profits. Sure at the end of the year you can say I made money or I lost money but if you control your costs and use your cost data to make better business decisions you may not lose any money or be able to say I made more money.
Previous blogs discussed the importance and ways to collect your cost data. Now we can look at what we can do with that data once you have it.
Last months blog discussed the proper Job Closing routines and the type of reports you should generate when a job is complete.
The last in this series of Job Costing Blogs will deal with the value of the data you have collected. Information is a valuable asset and when you are collecting information on every minute spent by every employee and machine, every material used and every purchase made you have a great deal of information that can be analyzed to identify better, more efficient ways to run your company.
The type of reports you can generate with this type of information are:
1. Job Analysis
At the end of each job you get a complete break down of all costs labor, material, purchases and inventory that went against that job. You can compare the actual costs and hours to the estimated costs and hours to see how your plant performed. If there are costs that can be rebilled to the customer you can capture more revenue. If there are differences in the estimate and actual these difference can be analyzed as to whether they were one off differences or systematic changes that need to be addressed
2. Production Analysis
It is important that you ensure that makeready times and run speeds you achieve on the plant floor clearly reflect the data you use in your estimating process.
If you are estimating a piece of equipment at 5000 per hour but infact you are only achieving 4000 per hour on the shop floor you are losing money every time you win a job. Conversly if you are estimating at 4000 per hour and are actually achieving 5000 per hour on the shop floor you are losing jobs you could produce profitably.
3. Employee Analysis
Not all employees are equal and monitoring production results from an employee angle allow you to identify which employees may need more training.
4. Historical Information
Capturing all data about a job provides an excellent foundation for estimating and production in the event the job is re run in the future. This can provide your company with a competitive advantage as to where costs can be saved or allow you the knowledge to requote the job in a manner that will ensure you re coup all costs.
5. Time Analysis
By capturing every minute of time spent by each employee and each machine we can analyze that time to make decisions. For example examine how many hours each employee worked and what percentage of those hours were chargable time. If you have employees that work less then say 65% chargable time you may have to examine their role in the company.
A good job costing system will record the hours spent make-readying, running, cleaning up, repairing, maintaining or having no work for a machine. A machine with increasing repair and maintenance time may need to be replaced. A machine with large amounts of down time may be an asset that can be sold.
Job Costing not only allows you to analyze how a certain job ran at a specific time but also allows you to analyze all aspects of your business in a very historical way.