Job costing for architects: what you need to know

Job costing for architects: what you need to know

For architecture firms, keeping projects on budget is crucial for success, and job costing plays a significant role in this process. Accurately tracking every cost related to a project, ensures that a firm remains profitable and can deliver on time and within budget. Effective job costing for architects goes beyond estimation; it’s about constantly monitoring costs as the project evolves to prevent any nasty surprises.

In this blog, we’ll explore how architectural firms can streamline job costing, and discuss key methods, common challenges, and simplifying with modern software.

What is job costing?

In simple terms, job costing is tracking all the costs tied to a project. This includes direct costs like labour and materials, as well as indirect costs like overhead or administrative expenses. For architectural firms, where multiple projects often run simultaneously, job costing is essential to keeping track of expenses and ensuring that each project remains profitable.

Effective job costing helps firms:

• Set realistic project budgets
• Bill accurately for the work being done
• Optimise resource allocation by knowing exactly where time and money are being spent

Why job costing is important for architecture firms

Accurately tracking project costs isn’t just a good business practice—it’s crucial for ensuring a firm's profitability. Without a clear understanding of where money is being spent, firms risk overestimating or underestimating budgets, leading to losses. By implementing accurate estimates and tracking costs throughout a project’s lifecycle, architecture firms can avoid the headaches of budget overruns and delays.

Key benefits of job costing include:

• Better fee setting: With a clear understanding of costs, firms can set project fees that reflect the work being done and avoid underpricing.
• Real-time cost tracking: This enables firms to monitor project expenses throughout the process, adjusting as needed to stay within budget.
• Resource optimization: Knowing where labour and materials are allocated helps firms avoid overspending or misallocating resources.

Job costing methods: top-down vs. bottom-up

Most firms use either a top-down or bottom-up approach when developing project budgets. Understanding how each method works can help you choose the one that’s right for your business—or better yet, combine both to get the best of both worlds.

Top-down approach

The top-down method starts with a predetermined total budget or lump sum for a project. You then allocate portions of that total to cover different areas like labour, materials, and overhead. This approach works best when a project has a fixed budget, but it requires careful tracking to ensure none of the major cost areas are underestimated.

Bottom-up approach

In contrast, the bottom-up method involves estimating individual costs for each part of the project—such as labour hours, materials, and subcontractors—then building up the total project cost from those smaller pieces. This approach is more precise and tends to result in accurate estimates for each phase of the project, but it can also lead to higher overall budgets.

Common challenges in job costing

While job costing is essential for success, architecture firms often face challenges when trying to accurately estimate costs. Below are a few common issues:

1. Underestimating labour costs

Underestimating the time and labour needed to complete a project is a frequent problem in architecture. Design changes, unexpected challenges, or changes to the project's scope can all drive up labour costs, which can lead to budget overruns if not anticipated. Using past project data to estimate labour costs more accurately is crucial for preventing this.

2. Overlooking indirect costs

Indirect costs, like administration, software subscriptions, or equipment maintenance, are easy to overlook but can significantly impact project profitability if not accounted for. A detailed job costing plan should include these hidden costs to avoid surprises down the line.

3. Managing unexpected construction cost

Architectural firms must plan for unexpected construction costs that may arise during the project. These might include rising material prices or extra expenses related to building control and permits. Without considering these potential costs, projects can easily exceed the initial budget, leaving firms with diminished profit margins.

The benefits of job costing software

Many architecture firms still rely on spreadsheets and manual data entry for job costing. While this method can work, it’s time-consuming, error-prone, and inefficient for larger, more complex projects. That’s where job costing software comes in. Modern software tools are designed specifically for architectural firms and help automate the job costing process, reduce errors, and provide real-time insights into project costs.

Key benefits of job costing software

1. Templates for quick estimates: Many tools offer pre-configured templates that firms can use to quickly generate cost estimates for common project types. This speeds up the process and ensures consistency across projects.
2. Real-time tracking: Instead of waiting until the end of a project to assess costs, job costing software allows firms to track costs in real-time. This enables immediate adjustments if costs start to creep over budget.
3. System integration: Many job costing tools integrate with other software systems like accounting and project management tools. This allows firms to easily monitor expenses without needing to manually update multiple systems.
4. Future resource planning: Some software tools use past project data to help firms forecast future needs—such as staffing levels or material requirements. This can improve planning for future projects and prevent bottlenecks or resource shortages.

How job costing improves profitability

By using job costing effectively, firms can improve profitability in several ways. It not only helps set realistic project fees but also ensures you don’t run into unexpected financial challenges during a project.

1. Setting realistic fees

Firms can use job costing to set project fees that accurately reflect the amount of work and resources required. Knowing how much time and labour will be needed allows firms to set competitive prices without undercutting themselves.

2. Avoiding cost overruns

Tracking costs in real-time helps firms identify when a project is trending toward a budget overrun. Adjustments can be made early, whether by reallocating resources, renegotiating with suppliers, or making process changes to stay on track.

3. Better resource allocation

Job costing helps firms allocate their resources more efficiently. Knowing how many labour hours or materials a project requires in advance ensures that the right resources are available at the right time, preventing delays and unnecessary spending.

4. Building client trust

Clients appreciate transparency. By providing clear, detailed breakdowns of costs upfront, firms can build stronger relationships and prevent disputes over fees. Additionally, it sets realistic expectations for clients, reducing the likelihood of unpleasant surprises as the project progresses.

The future of job Costing in architecture

The architecture industry is changing, and as project timelines shorten and client demands increase, job costing will become even more essential. Automated software solutions that integrate with accounting, project management, and resource planning tools will continue to evolve, providing firms with even more control over their budgets and project costs.

For architecture firms, job costing is an essential tool for managing project budgets, avoiding overspending, and improving profitability. Whether using a fixed fee or lump sum structure, job costing ensures firms accurately estimate all project expenses, from labour to materials and overhead.

Using job costing software allows architectural firms to streamline the entire process, from setting budgets to tracking costs in real-time. With features like templates, system integration, and future resource forecasting, job costing software makes it easier than ever to manage projects and their costs.

Why choose CMap's job costing for architects?

CMap's project management software for architecture & engineering firms is purpose-built for the AEC industry, and integrates essential job costing tools along with resourcing, CRM & more to give architects & engineers full control over their fees and profitability. Find out more.