Unveiling the layer cake approach to job costing in construction
Cost codes play a vital role in construction accounting, specifically in the realm of the Construction Specifications Institute (CSI) cost codes. These codes provide a structured system for categorizing and monitoring expenses and revenues associated with construction projects. Their significance in construction accounting can be highlighted through various essential functions such as expense tracking, budgeting and estimating
A Work Breakdown Structure (WBS) (scope of work) is a foundational project management tool with extensive applications in construction and various industries. In construction, where projects are intricate and multifaceted, a WBS plays a pivotal role in effective planning, organization, and project management. The functioning of a Work Breakdown Structure in construction follows a hierarchical structure, with the top level representing the overall project and subsequent levels breaking down the project into smaller components.
Navigating Tracking Systems
Subcontractors and self-performing teams employ cost codes to track labor, material, and equipment costs, usually categorized by trade. Conversely, schedules and owner's pay items are typically organized based on the work breakdown structure or scope of work. To date, there has been no seamless method for converting one tracking system to another, exacerbating the challenge of capturing actionable feedback on estimated unit prices.
The Layer Cake Revelation
Confronted with this issue, a revelation occurred—an analogy of a layer cake. Imagine a beautiful layer cake with several layers, each distinct in color and flavor, covered in smooth, even frosting. Now, picture a single slice removed from the cake, revealing the layers clearly, each with its own unique attributes. This analogy resonated, as there can be an array of cost codes, and scopes of work typically involve numerous cost codes.
The Matrix Solution
Upon further reflection, it became apparent that this concept could be translated into a simple matrix. Columns represent activities or scopes of work, while rows correspond to cost codes. By prompting subcontractors to itemize their estimates by scope of work or activity, they gain the ability to report both total costs by scope and utilize the necessary cost codes for their projects.
A Dual-Purpose Interface
This approach bridges the reporting gap, capturing data from both the work-face using cost codes, and reporting it upstream to the owner based on scheduled activities or scopes of work. A user-friendly interface employing this matrix concept offers a comprehensive solution, benefiting self-performing teams, construction management, and project owners alike.
The Importance of Accurate Unit Pricing
Estimators rely on unit pricing records, sourced from estimating handbooks or their own experience, to determine production rates and material consumption, which, in turn, dictate the overall project cost. However, discrepancies in unit prices can pose significant challenges for contractors.
In the realm of construction estimating, the ultimate objective is to attain the actual unit costs upon completion, presented in a format that facilitates actionable insights. This information serves as the foundation for refining unit pricing in future endeavors.
The layer cake analogy offers a fresh perspective on job costing in construction, addressing the longstanding challenge of converting tracking systems and capturing actionable feedback. This innovative approach promises to revolutionize the way construction projects are estimated and managed, providing a more accurate and actionable foundation for future endeavors.