Taking better control of complex and diverse businesses is a difficult thing to do. After all, when there are multiple processes, tasks, projects and initiatives taking place constantly at differing rates of work, it’s tricky to keep an eye on everything, and be sure that each initiative is profitable. This is where job costing, a key component of managerial accounting, can really shine. By breaking every initiative into a self-contained job and attaching all the expenses, incomes and activities to it, it becomes far easier to manage every one of them for profit or loss, giving you accurate control of multiple initiatives at the same time.
It’s perhaps easier to understand how well job costing can work by using a real-life example. Queenstown’s Millbrook Resort is just such an enterprise, where multiple business activities all rolled up into the overall business. The resort has, for example, hotel accommodation, a golf course, multiple restaurants, a health spa and a fitness centre. Added to that, it has, at any one time, multiple properties under development. Each of these ‘sub-businesses’ is very different in character, activity, staffing level and capitalisation required.
It clearly wouldn’t be good enough to hope for the overall health of the organisation and its component parts unless it were possible to manage each one (and each property being developed) as a ‘virtual’ separate entity. After all, you’d want to know which components are doing well, and which need attention if they were to slip into losses.
And that’s where job costing has really shone for Millbrook Resort. Every entity, be it a new home under development, one of those restaurants or the Pro shop, is effectively run as its own business. Every item for each individual component is allocated to that component. And consolidated reports which provide an overall view of the complete business are generated on demand as required, or to meet statutory filing and reporting deadlines.
How does Millbrook, or any other company doing job costing, get it right?
The answer lies in an Enterprise Resource Planning solution which supports job costing, in this case MYOB’s Greentree solution (read the case study here).
For an ERP system to support job costing, its accounting modules must allow for the provision of job numbers to individual items of expenses and revenues (jobs are typically defined as specific projects, as is the case for Millbrook, or they can be assigned to for example single units or batches of manufactured products).
That ‘job number’ is fundamental to the ‘magic’ of job costing. It allows for accurate tracking of direct expenses such as labour and materials, and the allocation of overhead costs which might include warranties, quality control, management and so on, to each job. By the same token, all income is tracked against that job, too, so a detailed profit and loss statement can be readily produced – with that P&L specific to each job number.
In the absence of a sound job costing ERP solution, this process is typically handled with – you guessed it – spreadsheets. Imagine the nightmare for accountants, project managers, business managers and owners, dealing with multiple complex initiatives with multiple massive spreadsheets. The manual work keeping track of everything alone is frightening. Now picture end-of-period financial reporting.
Contrast that with automated job costing built into your ERP system. In this case, tracking progress, handling month-end and end-of-periods is a matter of clicking a few buttons. It’s a major advantage which, for complex organisations, can completely transform the accounting department and the business itself.
If you’re interested in finding out how we can help you with a suitable ERP solution which includes job costing, get in touch. We’d love to hear from you.