“Beware of little expenses. A small leak will sink a great ship.”—
Benjamin Franklin
It has recently come to my attention that the topic stream for this column has begun to veer off on in a decidedly heady direction. And while certain high-minded subjects of late (artificial intelligence, abundance theory, war!) have all borne a direct relevance to an overarching theme regarding the economic state of the construction industry (and thereby the subtopic of construction estimating), I do confess over straying into the tall grass at times.
Consequently, I endeavor to do some serious deflation, and the perfect remedy to a wayward sojourn into hyperreality is a reduction from the mega to the micro—thus, a leap into the more tangible world of job-costing categories, with an even tighter focus on miscellaneous costs.
A quick-and-dirty definition of job costs might be appropriate here. Job costing is an accounting process in which project expenses are tracked and analyzed before, during and after costs are incurred. Then too, an explanation of the different types of job costs might be instructive as well, although most astute estimators and managers are familiar (perhaps painfully so) with them.
Direct costs are those that are directly attributable to the physical construction project. These include labor, material and equipment. Indirect costs are those not directly linked to the work itself, but nevertheless vital to the completion of the project. Services (such as engineering), fees and contingencies are typical examples of indirect costs. Overhead is defined as operational or administrative costs, such as home office (accounts payable/receivable, payroll, human resources).
To underscore the obvious, the immediate relevance of this general theme is self-explanatory: the estimate and the budget are (or should be) two sides of the same coin. That is, the estimate drives the budget and vice-versa. Clearly stated, all costs that are allocated to the estimate must be (or surely, should be) reflected in the budget. But while certain cost-categories can be accurately predicted and quantified (such as drywall or metal framing material), some aspects of job-costing are vague by nature. Even certain direct costs can be maddeningly murky. These ambiguous categories are what I call the heinous miscellaneous. Heinous because of their uncanny ability to alter their scope, and heinous because they can seem to be innocuous on the estimate side but deadly in their impact on costs to the budget.
As is usually the case, the causes of disparity are several, and difficult to address. One of the main issues underlying this dilemma resides with the original naming or labeling of the cost categories. Miscellaneous groupings might be labelled with such ambiguous designations as fasteners, small tools, consumables, specialties, or sundries. Such vague labels can easily fall prey to misinterpretation, as budget categories are rarely, if ever defined or described by anything more detailed than their original titles. The examples are these definitional ambiguities that are numerous and often overlap.
Small tools. What constitutes small tools? How are they described? One must wonder what the criteria are: size, cost or both. Some commercial drywall outfits issue a new screw gun to each new hanger/framer recruited to the tune of about $100 each. An astute estimator will note the impact of this in the event of an upsizing trend in manpower. But what about hand-routers, chop-saws, laser levels, impact tools, etc.? How are they to be allocated? Are there formulae in place for allocation of these tools—such as one chop-saw for every crew of four or five individuals? These are questions that must be addressed by estimators and project managers alike.
Fasteners. One would think this would be the most straightforward category of all the miscellaneous groupings. One automatically thinks of screws, impact pins and such hardware that can be allocated formulaically (such as the number of drywall screw per man hour). But even here, aside from the dizzying array of various anchors—screws, nails, bolts, nuts, washers, rivets, clips and clamps—ambiguity inevitably creeps in with concerns over definition. Is a tube of construction adhesive considered a fastener? What about welding rods? What about wire?
Consumables. Again, intent might often be confused with application. An estimator may make an allocation and form a group based on rational assumption. This category would usually include such items as chop-saw blades, drill bits, knife blades, etc. However, one can easily see how consumables might fall into the fastener category, as in the cases of welding rod and tubes of adhesive.
Often, the cause of confusion among miscellaneous cost groupings comes from an outside source. Commonly, sizeable drywall firms will employ a separate equipment manager or purchasing agent who will tally incoming expenses as they are incurred. At the point of purchase or delivery, this external manager will capture incoming costs, subject to his own interpretation, which may or may not coincide with the intent of the original estimate/budget. Unfortunately, such external managers may be inclined to simplify the job-costing process by lumping most miscellaneous costs into one grouping. For instance, it is common practice for a purchasing agent to use fasteners as a catch-all for consumables.
I personally recall, as a project manager/estimator, several occasions in which I noticed the fastener line item had exceeded my budget line for fasteners within a mere few weeks’ time. Upon investigation into the disparity, I would invariably discover that the culprit was some overworked equipment manager who was coding small tools, consumables, various and sundry miscellaneous items into the fasteners code for convenience’s sake.
A blunt lecture on the importance of accuracy in job costing and a couple of budget adjustments would be the remedy. But for this reason, it is imperative that estimators and project managers alike review all incoming costs on (at least) a daily basis. In this way, overruns may be avoided as inconsistencies are observed in real time.
Vince Bailey is an estimator/project manager in the Phoenix area.
