What is the financial impact?
Timecard errors have a huge impact on Emma’s ability to provide reliable job estimates, and to generate a reasonable level of profit. These mistakes can result in either overcosting (assigning too much cost) or undercosting (assigning too little cost) to a particular job.
A business owner should expect some differences between estimated and actual costs, based on changes in the cost of materials, wage rate, or gas prices during the year. However, these costs can be explained, and are expected in business.
The bigger issue is computing job costs based on bad information, and the manual timecard issue may produce incorrect data.
Take the Johnson tree removal job, as an example. Emma’s job estimate assumes 20 hours, at a cost of $25 per hour, or total labor costs of $500.
Let’s assume that actual hours incurred was 21 hours. Not too big a deal, because labor costs are only 5% higher than planned. Emma can talk to the work crew, find out why more time was needed, and make more accurate estimates moving forward.
But, what if the work crews only report 17 hours, when 21 hours were actually spent to the job?
This type of error creates several problems:
- The labor costs on the Johnson job are too low, and the profit calculation is too high.
- Assume that the missing 4 hours were incorrectly assigned to the Smith job. Labor hours on the Smith job are too high, and the profit calculation is too low.
The incorrect labor hour calculation on both jobs also means that the vehicle, equipment, and home office costs are incorrectly allocated.
A business that uses a manual system, or even a process using spreadsheets, may have dozens of job costing errors, making it impossible to manage costs and price jobs accurately.