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.
March's blog 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.
Lets start with your Job Closing routine. When you complete a job do you simply pass the job to invoicing and have them bill the customer based on your estimated amount. If so you are probably missing valuable information.
Closing a job in an automated system should generate several useful reports and functions.
1. Close the Job to Prevent Additional Charges
When you decide to make the invoice the last thing you want is to have employees still incurring costs against the job. Trying to get a customer to pay additional charges after you sent them the original invoice is at the very least embarassing.
Part of your closing procedure should prevent additional time, materials and purchases being placed against a job without a supervisor OK once the billing process starts.
2. Full Listing of all Costs Incurred
The Job Closing process should generate a report that lists all labor hours and cost, material costs and purchases that went into producing that job. Ensure you are aware of all money that went into the job. Your closing report should offer you the option to view the data by dept, cost center, operation or transaction level.
Generally these reports are viewed at a cost center level. This means we would see a Total Hours and Total Dollars for each machine used on the job. If we see a cost center that looks unusually high or low we can drill down to an operation level to see if it was the makeready or run. If we identify the source we can drill down to a transaction level to see which employees worked on this job.
3. Actual vs Estimate Report
This report provides a comparison of the estimated hours and costs for all labor, material and purchases for the specific job to the actual costs.
This is a valuable report that can quickly identify actual costs that are not in line with your estimated costs. This could prove to be a one time exception that nothing could prevent or maybe it is a process that needs to be evaluated. If you are estimating a machine to run at 5000 / hr and it is actually running at 4000/hr you are losing money every time you win a quote. Conversely if it is running at 5000/hr and you are quoting 4000/hr you are losing jobs you should be winning.
4. Changes Report
When a job is complete you should be able to get a listing of all changes made to the job from the time you agreed to produce the job to the final product that was shipped to the customer. It is important to track these changes as you will need them to explain time and cost variances and also to help correct legitimate extra charges. Collecting extra charges can be a great source of additional revenue and by having a complete backup of information about the extra charge i.e. who, what where, why and when a change was made allows you to collect that extra charge without damaging the relationship with that customer.
5. Problem History
Provide your employees with a problem history system they can use to enter problems with jobs as they happen. When closing a job a list of its problems can be viewed. These problems may help explain some of the variations and issues on the job. This saves the time of office staff to track down employees and ask what happened 2-3 days ago.
Problem history is also very valuable when quoting or running this job in the future.
By following good closing procedures you can ensure that all costs are captured, all legitimate extra charges are recovered, all production variances are accounted for and all processes are running as efficiently as possible.
A good Job Closing Routine Opens Doors to Profits.
Tuesday, May 31, 2011
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