The Backbone of An Effective Cost Code System in Construction

Cost Codes – More Than The Defined Cost of Work-In-Process

Cost codes should not be defined merely as the types of work within a project. Such simplicity of definition causes one to miss the purpose of having a cost code system. At the core level, the codes tend to relate types and classes of cost for operations such as footings and labor, material and slabs on the ground or and any other exact segment of building structure. But to be effective and efficient, cost codes must accurately reflect the roots of the associated accounting system operating expenses. This means that contractors who make use of functional cost codes must also consider the relationship between cost classes and the associated Code of Accounts (COA).

Cost Codes – Derived From The Code of Accounts

In the Directives Doe Gov document system, Chapter 5 assigns four major purposes to an efficient cost code system. The COA:

  1. Establishes a standardized development, collection, organization and reporting of critical project data
  2. Organizes type and class details into ever-expanding higher summary levels of reporting
  3. Expands and adapts from an original estimate stage into a collection of reusable variances and trends
  4. AND Ensure consistency between estimated and actual cost control data.

Essence of the Cost Code System

With the understanding that a cost code system is an evolving process, we can now take on a deeper definition of cost codes. So let us do some division. The core of a direct cost system branches into three levels:

  1. Primary – typically includes those categories that tend to accumulate the greater expense
  2. Sub-Summary – involves the core breakdown by work elements and/or bills of material
  3. Detail – the baseline cost codes as listed on the original cost estimate.

Each level, including the primary levels, feed a summary back into the next higher level. This ensures manageable, reliable and adjustable cost code responses. Whereas the detail level feeds into the sub-summary and the sub-summary feeds into the primary, one might wonder where then feeds the primary. Look no further than the summary obtained by the original project or subproject overall cost estimate details.

It is all about dividing the project into separate and manageable components all of which can then be re-funneled back into the overall project Code of Accounts. This enables contractors an ability to capitalize on task specifics such as:

  • Exact Cost Phases of the operations such as geographical areas, distinctive buildings, floors and more
  • Precise Cost Classes of the operations such as labor, material and more
  • AND Extended Cost Codes pertaining to the likes of footings, production output, slap on grade, skill and more.

Managing Cost Codes

Managing an effective COA and the associated cost codes can be complex. But the process offers great rewards in the order of better overall company profits as well as a reduction in project-related complications and reworks. Managing cost codes is not a pen-to-paper task. Nor will spreadsheets rightly handle the process. To make COA and cost codes functional for your business you need a tool that enables:

  • Real-time data collection and tracking
  • Automated data transfer between your accounting software and your timekeeping system
  • Accuracy and immediate feedback
  • AND Customizable flexibility.

You need the mobile-based Assignar workforce and asset allocation and planning software. Learn more about how Assignar can help with Job Costing.

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