Three Things to Get Right When Picking a Time Tracking System for job Costing

Job costing requires allocating costs by job. Generally there are 3 categories of costs: labor costs, material costs, and the cost for contracting other services. Of those three, labor costs are often the most difficult to allocate. Proper allocation of labor costs requires knowing who did what and how long it took them. That is where time tracking is required. 

Each time an employee records their time either by clocking in or by entering an amount of hours, they tell you how much of their work was spent on a specific job. When that information is correlated with their fully burdened pay, their labor cost can be allocated to the job. Let’s take a journey inside of this process to better understand all the critical role time tracking plays in this process. 

What’s in a name? Getting job selection right

OK, find and select a job. Easy. But, wait a moment, what does it take to get this right? 

First, you want to make job selection easy to do and limit mistakes. The best way to limit mistakes is to use a naming convention that is simple to understand, intuitive to use. For example, if you are running an HVAC company, often the most intuitive name for a job is a combination of customer’s name and the address of the install - John Smith - 123 Main St. 

Second, since the objective is job costing it is important to make sure that all the systems involved use the same naming convention. If your time tracking is using customer name/address (John Smith - 123 Main St) but your accounting systems using an arbitrary number (JB-314159) then there will be confusion and over time that confusion will lead to errors. So, establish a convention and ensure that all systems use the same names. 

Third, sharing of the names for jobs should be automatic. There should be one source for the names of your jobs and the transfer of the job information to all related systems should be automatic. So, if your process starts with the creation of the customer and job in your accounting system that should be the source. If, on the other hand, you use a bid and proposal or a project management system and that is where the process starts, then that is the source and the job name should be automatically pushed to the time tracking and accounting systems. 

Fourth, make sure that accounting is on board. The objective is job costing. Job costing takes place in the accounting system. So, make sure that you accounting system uses the exact same name as all of the other systems. When that is true, job costing becomes easy. If not, you will find yourself using spreadsheets and double entry to perform even the simplest job costing. 

So, when choosing a time tracking solution make sure that it will integrate easily with all the other systems required. Make sure that you can define jobs the way that makes the most sense to the way you work and that the name is automatically synchronized across all the systems you use. 

How do you define work? Time tracking must match your requirements

In the competitive landscape, every company has their secret sauce. They have some way of identifying opportunities or providing their services that sets them apart. Job costing is the practice of measuring the success of these efforts so you can discover what is working and improve what is not. 

But you can’t evaluate what you can’t measure. That is why it is critical that your time tracking system has the flexibility to allow you to define a job the way that makes sense for your business, to define jobs in a way that allows you to find and refine your path to success. 

This requires that time tracking systems are built with a ton of flexibility. You should be able easily add fields to define things the way that best fits your work. For example, do you perform both commercial and residential work? In some time tracking systems the only way you have to mark this distinction is to provide a required field that your employees would need to select when they record their time. Select the job, select the type of job (commercial | residential ). 

Well, that is absurd. Since it is a property of the job, it should be set on the job eliminating this extra complexity when tracking time. Just choose the job. The system will know in the background whether that is a residential or a commercial job. 

The key is to make sure that the time tracking system you select has the flexibility to match the way you work. Look for time tracking systems that allow you to define custom fields for use on time sheets or to better define a job or even to record information about your employees. Flexibility is key to making tracking time quick and easy for your employees while also ensuring that you capture the data you need to properly job cost. 

But is it easy?

Time tracking must be easy. The majority of your employees will use time tracking possibly many times per day. This quickly adds up. And the resistance to adopting time tracking habits is fierce. So, even minor improvements in ease of use have a significant impact. Here are some of the ease of use factors to consider: 

Devices

Does the time tracking system support the devices that work best for your company? In most cases the list of devices is browser, phone, and kiosk. Check to make sure that the time tracking system you select supports and has a user-friendly interface on all three. In some case you may require 

Intuitive to use

Is the interface easy to use and understand? Evaluating the user interfaces of time tracking applications can be a bit bewildering. But this is critical to the successful adoption of time tracking in your company. Users should be able to immediately understand how to clock in and out, choose the job they are working on, and perform other functions. 

The best way to evaluate this is to trial the app with your employees. Have them try the app for a week. If it doesn’t work for them you will know right away, trust me. There is nothing more irritating than interacting with an app several times a day if the app is counterintuitive or simply hard to use. There are a number of small improvements that with repeated use can make a difference. 

For example, if you employees track their time by clocking in/out then check to see if the app has a switch capability allowing them to leave the app tracking all day and just switch from job to job or job to break. Not having to constantly clock in and out can make a big difference with time.

Integrates with your entire job costing ecosystem

Since time tracking is integral to job costing it is important to make sure that your time tracking solution integrates with all the components of job costing. At minimum it should synchronize jobs with account and time with payroll.

Often, though, the level of integration goes much deeper. Consider employee information. There are a number of things in job costing that require information about your employees. For example, many companies want to perform profit and loss by department. That requires knowing the department for each employee and that information is maintained in payroll or HRIS. 

To ensure that these integrations work smoothly check to make sure that the time tracking system you use has a robust API (application programming interface) that supports the ability to update employee or job information. Depending on the complexity of what you are trying to achieve you may also want to consider a solution for orchestrating and maintaining these connections between systems. 

Good time tracking = Effective job costing

Time tracking plays a critical role in job costing. Labor costs are the most complex and also, often, the most significant costs when evaluating the profit and loss of jobs. And, since, time tracking is the process used to connect work done to the job you cannot do job costing without accurate time tracking. Simply, time tracking right is fundamental to effective job costing.